Relatives may stand to inherit money or property after a loved one passes away, but there is also a measure of financial business that must be settled upon the death of a taxpayer. This business, which may include filing the deceased’s final taxes, having their real estate appraised, alerting the Social Security Administration of the taxpayer’s passing, and completing other tasks, is assigned to a court-appointed representative if a person was not previously specified in the deceased’s will.
Some matters that may need to be settled include:
- Capital Assets—Capital assets are, simply put, assets that cannot be quickly turned into cash. These can include machinery, jewelry, furniture, art, specimen collections, vehicles, and more. On the death of the taxpayer, the fair market value of the capital assets must be determined for estate and probate purposes, and for determining the basis of the assets for when they are transferred to the beneficiary.
- Real Property—This is defined as property that is directly tied to land, with or without buildings, as well as any rights and interests tied to the land. The value of real property must be determined by a qualified appraiser. This process can be complex, so it may be prudent to take quick action to speak with a tax professional once the need for an appraisal becomes apparent.
- Readily Traded Securities—The fair market value of stocks, mutual funds, and other readily traded securities is determined by their value on the date of the taxpayer’s death. The appropriate brokerage firm must be contacted to determine what securities were held by the deceased.
- Tax Returns—A variety of forms are required upon the filing of a final tax return. Form 1040 must be filed as usual. Form 1041 reports income received on the assets of the estate, and Form 706 determines the tax on the value of the assets of the estate. Equivalent state returns may also be required, and other forms and procedures may apply.
Factors that may further affect the final tax settlement process include circumstances such as the surviving spouse remarrying within the same year as the former spouse’s death, whether the deceased collected Social Security benefits, medical expenses, and more. A qualified tax professional, such as the team at Taxation Solutions, Inc., should be able to sort out all of the pertinent details associated with end-of-life taxes.
It may be beneficial to gather any paperwork pertaining to the matters mentioned above, such as deeds or a list of stocks and securities, and keep them readily accessible to loved ones in the event of your passing. This will make it easier for your next-of-kin to straighten out your tax matters and give them all the information they need to present to their chosen tax attorney or other professional.