When a loved one dies, it can be stressful to handle the finances. But, with a little planning and guidance, you can ensure the taxes are taken care of.
So who is responsible for paying taxes for a deceased person? The responsibility for filing the decedent’s final return usually falls to their surviving spouse or an appointed representative. A personal representative can also be a good option, especially when the deceased is unmarried.
Determine the Deceased’s Filing Status
When you lose a loved one, dealing with taxes can be emotional. But it’s essential to file the deceased’s final tax returns and ensure that any owed taxes are paid out.
The first step to filing taxes on behalf of a deceased person is determining their filing status. A few different factors determine a decedent’s filing status.
According to the IRS, a deceased taxpayer who received little income in the year of death may not need to file a federal return for that year. Rather, they can file a return using the tax package corresponding to the province or territory in which they resided at the time of their death.
A tax package includes all the information a taxpayer needs to file a return, including income and deductions. These amounts change yearly, so it’s important to check the current tax package.
Find Out What Taxes Are Due
When a loved one passes away, many aspects of their financial life need to be addressed. These include taxes.
The first step is determining what taxes are due and who is responsible for paying them. This includes federal, state, and local taxes.
A tax professional will help you navigate these issues. They can provide qualified and up-to-date advice and help you through filing on behalf of the deceased.
Deceased individuals may owe income, estate, and gift taxes, as well as state taxes. They also may have to pay property taxes on their home or business if they own any.
File the Return
A personal representative should file a deceased taxpayer’s final income tax return, usually named in their will or appointed by a court. This person may be the spouse or other family member, their accountant, or a financial adviser they had at the time of their death.
Whether e-filed or paper filed, the decedent’s name and date of death should be written across the top of the return. The return should also be signed by the person responsible for filing it.
If the deceased owed any taxes, those should be paid out from the estate before any funds are distributed to beneficiaries. However, if the estate doesn’t have enough money to pay the balance, the debt won’t transfer to the person managing the estate.
Make Payments
After death, one of the most important tasks is ensuring that the deceased’s taxes are filed and paid. In addition to submitting the deceased’s final return, you will also need to send in any tax rebates and payments that were made to the decedent during the tax year.
The CRA also administers federal and provincial government credit programs that may apply to the decedent. These include the GST/HST credit and Canada Activity Incentive Program (CAIP).
Although you may not need to make the most expensive purchase of a lifetime in the name of the largest tax rebate, there are still some hefty expenses that you’ll need to tackle. For example, you’ll need to pay the appropriate taxes on your deceased’s retirement income and any other compensation that was received during their lifetime. The best way to go about this is to use the tools and information provided in the CRA’s Represent a Client service or in your province’s tax center’s guide to filing taxes for a deceased person.