Executors need to think about unique tax problems

Pennsylvanians who have been named as an executor under a will are responsible for attending to any outstanding tax obligations left behind by the testator. They need to start by filing the final income tax return for the year of the decedent’s death. If the decedent was married, the Form 1040 can be filed as a joint return. If there are unpaid medical expenses, they can be deducted if the amount is in excess of the applicable percentage of adjusted gross income. However, it may be more prudent to deduct them on the estate’s federal estate tax return if the value of the estate exceeds the exemption, which is $5.45 million in 2016.

Estates are liable for income taxes when their annual gross income exceeds $600. When necessary, the income tax return must be filed independently from the decedent’s personal income tax return. Taxation calculations begin right after the date of death, and U.S. Income Tax Return for Estates and Trusts, or Form 1041, has to be filed by a certain date.

Estates may have to pay a federal estate tax if the decedent granted sizable gifts before their death or the value of the estate exceeds $5.45 million. Depending on the forms being filed, some executors also need to obtain federal employer identification numbers for the estate and file additional state returns for income or death taxes.

The duties of an executor can sometimes seem overwhelming. In addition to dealing with the IRS, bills have to be paid and the decedent’s assets have to be protected and preserved for the testator’s beneficiaries while the estate is going through the probate process. Attorneys with estate administration experience can often be of assistance in this regard.