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H&r Block Free 1040ez

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H&r block free 1040ez 5. H&r block free 1040ez   Recordkeeping Table of Contents How To Prove ExpensesWhat Are Adequate Records? What If I Have Incomplete Records? Separating and Combining Expenses How Long To Keep Records and Receipts Examples of Records If you deduct travel, entertainment, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expense. H&r block free 1040ez This chapter discusses the records you need to keep to prove these expenses. H&r block free 1040ez If you keep timely and accurate records, you will have support to show the IRS if your tax return is ever examined. H&r block free 1040ez You will also have proof of expenses that your employer may require if you are reimbursed under an accountable plan. H&r block free 1040ez These plans are discussed in chapter 6 under Reimbursements . H&r block free 1040ez How To Prove Expenses Table 5-1 is a summary of records you need to prove each expense discussed in this publication. H&r block free 1040ez You must be able to prove the elements listed across the top portion of the chart. H&r block free 1040ez You prove them by having the information and receipts (where needed) for the expenses listed in the first column. H&r block free 1040ez You cannot deduct amounts that you approximate or estimate. H&r block free 1040ez You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. H&r block free 1040ez You must generally prepare a written record for it to be considered adequate. H&r block free 1040ez This is because written evidence is more reliable than oral evidence alone. H&r block free 1040ez However, if you prepare a record on a computer, it is considered an adequate record. H&r block free 1040ez What Are Adequate Records? You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. H&r block free 1040ez You should also keep documentary evidence that, together with your record, will support each element of an expense. H&r block free 1040ez Documentary evidence. H&r block free 1040ez   You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. H&r block free 1040ez Exception. H&r block free 1040ez   Documentary evidence is not needed if any of the following conditions apply. H&r block free 1040ez You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging. H&r block free 1040ez ( Accountable plans and per diem allowances are discussed in chapter 6. H&r block free 1040ez ) Your expense, other than lodging, is less than $75. H&r block free 1040ez You have a transportation expense for which a receipt is not readily available. H&r block free 1040ez Adequate evidence. H&r block free 1040ez   Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense. H&r block free 1040ez   For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information. H&r block free 1040ez The name and location of the hotel. H&r block free 1040ez The dates you stayed there. H&r block free 1040ez Separate amounts for charges such as lodging, meals, and telephone calls. H&r block free 1040ez   A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information. H&r block free 1040ez The name and location of the restaurant. H&r block free 1040ez The number of people served. H&r block free 1040ez The date and amount of the expense. H&r block free 1040ez If a charge is made for items other than food and beverages, the receipt must show that this is the case. H&r block free 1040ez Canceled check. H&r block free 1040ez   A canceled check, together with a bill from the payee, ordinarily establishes the cost. H&r block free 1040ez However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose. H&r block free 1040ez Duplicate information. H&r block free 1040ez   You do not have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner. H&r block free 1040ez   You do not have to record amounts your employer pays directly for any ticket or other travel item. H&r block free 1040ez However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend. H&r block free 1040ez Timely-kept records. H&r block free 1040ez   You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. H&r block free 1040ez A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall. H&r block free 1040ez   You do not need to write down the elements of every expense on the day of the expense. H&r block free 1040ez If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record. H&r block free 1040ez   If you give your employer, client, or customer an expense account statement, it can also be considered a timely-kept record. H&r block free 1040ez This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record. H&r block free 1040ez Proving business purpose. H&r block free 1040ez   You must generally provide a written statement of the business purpose of an expense. H&r block free 1040ez However, the degree of proof varies according to the circumstances in each case. H&r block free 1040ez If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation. H&r block free 1040ez Example. H&r block free 1040ez If you are a sales representative who calls on customers on an established sales route, you do not have to give a written explanation of the business purpose for traveling that route. H&r block free 1040ez You can satisfy the requirements by recording the length of the delivery route once, the date of each trip at or near the time of the trips, and the total miles you drove the car during the tax year. H&r block free 1040ez You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence. H&r block free 1040ez Confidential information. H&r block free 1040ez   You do not need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. H&r block free 1040ez However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense. H&r block free 1040ez What If I Have Incomplete Records? If you do not have complete records to prove an element of an expense, then you must prove the element with: Your own written or oral statement containing specific information about the element, and Other supporting evidence that is sufficient to establish the element. H&r block free 1040ez If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. H&r block free 1040ez Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. H&r block free 1040ez Documentary evidence can be receipts, paid bills, or similar evidence. H&r block free 1040ez If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial rather than direct. H&r block free 1040ez For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. H&r block free 1040ez Invoices of deliveries establish when you used the car for business. H&r block free 1040ez Table 5-1. H&r block free 1040ez How To Prove Certain Business Expenses IF you have expenses for . H&r block free 1040ez . H&r block free 1040ez THEN you must keep records that show details of the following elements . H&r block free 1040ez . H&r block free 1040ez . H&r block free 1040ez   Amount Time Place or  Description Business Purpose Business Relationship Travel Cost of each separate expense for travel, lodging, and meals. H&r block free 1040ez Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. H&r block free 1040ez Dates you left and returned for each trip and number of days spent on business. H&r block free 1040ez Destination or area of your travel (name of city, town, or other designation). H&r block free 1040ez Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. H&r block free 1040ez    Relationship: N/A Entertainment Cost of each separate expense. H&r block free 1040ez Incidental expenses such as taxis, telephones, etc. H&r block free 1040ez , may be totaled on a daily basis. H&r block free 1040ez Date of entertainment. H&r block free 1040ez (Also see Business Purpose. H&r block free 1040ez ) Name and address or location of place of entertainment. H&r block free 1040ez Type of entertainment if not otherwise apparent. H&r block free 1040ez (Also see Business Purpose. H&r block free 1040ez ) Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. H&r block free 1040ez  For entertainment, the nature of the business discussion or activity. H&r block free 1040ez If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity. H&r block free 1040ez    Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. H&r block free 1040ez  For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal. H&r block free 1040ez Gifts Cost of the gift. H&r block free 1040ez Date of the gift. H&r block free 1040ez Description of the gift. H&r block free 1040ez   Transportation Cost of each separate expense. H&r block free 1040ez For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year. H&r block free 1040ez Date of the expense. H&r block free 1040ez For car expenses, the date of the use of the car. H&r block free 1040ez Your business destination. H&r block free 1040ez Purpose: Business purpose for the expense. H&r block free 1040ez    Relationship: N/A Sampling. H&r block free 1040ez   You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. H&r block free 1040ez You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year. H&r block free 1040ez Example. H&r block free 1040ez You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. H&r block free 1040ez There is no other business use of the car, but you and your family use the car for personal purposes. H&r block free 1040ez You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. H&r block free 1040ez Invoices and bills show that your business use continues at the same rate during the later weeks of each month. H&r block free 1040ez Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year. H&r block free 1040ez Exceptional circumstances. H&r block free 1040ez   You can satisfy the substantiation requirements with other evidence if, because of the nature of the situation in which an expense is made, you cannot get a receipt. H&r block free 1040ez This applies if all the following are true. H&r block free 1040ez You were unable to obtain evidence for an element of the expense or use that completely satisfies the requirements explained earlier under What Are Adequate Records . H&r block free 1040ez You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What If I Have Incomplete Records . H&r block free 1040ez You have presented other evidence for the element that is the best proof possible under the circumstances. H&r block free 1040ez Destroyed records. H&r block free 1040ez   If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. H&r block free 1040ez Reasons beyond your control include fire, flood, and other casualties. H&r block free 1040ez    Table 5-2. H&r block free 1040ez Daily Business Mileage and Expense Log Name:       Odometer Readings Expenses Date Destination  (City, Town, or Area) Business Purpose Start Stop Miles  this trip Type  (Gas, oil, tolls, etc. H&r block free 1040ez ) Amount                                                                                                                   Weekly  Total             Total Year-to-Date             Separating and Combining Expenses This section explains when expenses must be kept separate and when expenses can be combined. H&r block free 1040ez Separating expenses. H&r block free 1040ez   Each separate payment is generally considered a separate expense. H&r block free 1040ez For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. H&r block free 1040ez You must record them separately in your records. H&r block free 1040ez Season or series tickets. H&r block free 1040ez   If you buy season or series tickets for business use, you must treat each ticket in the series as a separate item. H&r block free 1040ez To determine the cost of individual tickets, divide the total cost (but not more than face value) by the number of games or performances in the series. H&r block free 1040ez You must keep records to show whether you use each ticket as a gift or entertainment. H&r block free 1040ez Also, you must be able to prove the cost of nonluxury box seat tickets if you rent a skybox or other private luxury box for more than one event. H&r block free 1040ez See Entertainment tickets in chapter 2. H&r block free 1040ez Combining items. H&r block free 1040ez   You can make one daily entry in your record for reasonable categories of expenses. H&r block free 1040ez Examples are taxi fares, telephone calls, or other incidental travel costs. H&r block free 1040ez Meals should be in a separate category. H&r block free 1040ez You can include tips for meal-related services with the costs of the meals. H&r block free 1040ez   Expenses of a similar nature occurring during the course of a single event are considered a single expense. H&r block free 1040ez For example, if during entertainment at a cocktail lounge, you pay separately for each serving of refreshments, the total expense for the refreshments is treated as a single expense. H&r block free 1040ez Car expenses. H&r block free 1040ez   You can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record. H&r block free 1040ez Minimal personal use, such as a stop for lunch on the way between two business stops, is not an interruption of business use. H&r block free 1040ez Example. H&r block free 1040ez You make deliveries at several different locations on a route that begins and ends at your employer's business premises and that includes a stop at the business premises between two deliveries. H&r block free 1040ez You can account for these using a single record of miles driven. H&r block free 1040ez Gift expenses. H&r block free 1040ez   You do not always have to record the name of each recipient of a gift. H&r block free 1040ez A general listing will be enough if it is evident that you are not trying to avoid the $25 annual limit on the amount you can deduct for gifts to any one person. H&r block free 1040ez For example, if you buy a large number of tickets to local high school basketball games and give one or two tickets to each of many customers, it is usually enough to record a general description of the recipients. H&r block free 1040ez Allocating total cost. H&r block free 1040ez   If you can prove the total cost of travel or entertainment but you cannot prove how much it cost for each person who participated in the event, you may have to allocate the total cost among you and your guests on a pro rata basis. H&r block free 1040ez To do so, you must establish the number of persons who participated in the event. H&r block free 1040ez   An allocation would be needed, for example, if you did not have a business relationship with all of your guests. H&r block free 1040ez See Allocating between business and nonbusiness in chapter 2. H&r block free 1040ez If your return is examined. H&r block free 1040ez    If your return is examined, you may have to provide additional information to the IRS. H&r block free 1040ez This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed. H&r block free 1040ez    THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Table 5-3. H&r block free 1040ez Weekly Traveling Expense and Entertainment Record From: To: Name: Expenses Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total 1. H&r block free 1040ez Travel Expenses: Airlines                                 Excess Baggage                                 Bus – Train                                 Cab and Limousine                                 Tips                                 Porter                                 2. H&r block free 1040ez Meals and Lodging:  Breakfast                                 Lunch                                 Dinner                                 Hotel and Motel  (Detail in Schedule B)                                 3. H&r block free 1040ez Entertainment  (Detail in Schedule C)                                 4. H&r block free 1040ez Other Expenses:  Postage                                 Telephone & Telegraph                                 Stationery & Printing                                 Stenographer                                 Sample Room                                 Advertising                                 Assistant(s)                                 Trade Shows                                 5. H&r block free 1040ez Car Expenses: (List all car expenses - the division between business and personal expenses may be made at the end of the year. H&r block free 1040ez ) (Detail mileage in Schedule A. H&r block free 1040ez ) Gas, oil, lube, wash                                 Repairs, parts                                 Tires, supplies                                 Parking fees, tolls                                 6. H&r block free 1040ez Other (Identify)                                 Total                                 Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75. H&r block free 1040ez 00 or more. H&r block free 1040ez Schedule A – Car Mileage: End                 Start                 Total                 Business Mileage                 Schedule B – Lodging Hotel or Motel Name                 City                 Schedule C – Entertainment Date Item Place Amount Business Purpose Business Relationship                                             WEEKLY REIMBURSEMENTS:     Travel and transportation expenses     Other reimbursements     TOTAL   How Long To Keep Records and Receipts You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. H&r block free 1040ez Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. H&r block free 1040ez A return filed early is considered filed on the due date. H&r block free 1040ez For a more complete explanation of how long to keep records, see Publication 583, Starting a Business and Keeping Records. H&r block free 1040ez You must keep records of the business use of your car for each year of the recovery period. H&r block free 1040ez See More-than-50%-use test in chapter 4 under Depreciation Deduction. H&r block free 1040ez Reimbursed for expenses. H&r block free 1040ez   Employees who give their records and documentation to their employers and are reimbursed for their expenses generally do not have to keep copies of this information. H&r block free 1040ez However, you may have to prove your expenses if any of the following conditions apply. H&r block free 1040ez You claim deductions for expenses that are more than reimbursements. H&r block free 1040ez Your expenses are reimbursed under a nonaccountable plan. H&r block free 1040ez Your employer does not use adequate accounting procedures to verify expense accounts. H&r block free 1040ez You are related to your employer as defined under Per Diem and Car Allowances , in chapter 6. H&r block free 1040ez Reimbursements , adequate accounting , and nonaccountable plans are discussed in chapter 6. H&r block free 1040ez Examples of Records Table 5-2 and Table 5-3 are examples of worksheets which can be used for tracking business expenses. H&r block free 1040ez Prev  Up  Next   Home   More Online Publications
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H&r block free 1040ez Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. H&r block free 1040ez Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. H&r block free 1040ez An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. H&r block free 1040ez In general, an executor and an administrator perform the same duties and have the same responsibilities. H&r block free 1040ez For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. H&r block free 1040ez It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. H&r block free 1040ez Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. H&r block free 1040ez The personal representative also must perform the following duties. H&r block free 1040ez Apply for an employer identification number (EIN) for the estate. H&r block free 1040ez File all tax returns, including income, estate and gift tax returns, when due. H&r block free 1040ez Pay the tax determined up to the date of discharge from duties. H&r block free 1040ez Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. H&r block free 1040ez If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. H&r block free 1040ez Penalty. H&r block free 1040ez   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. H&r block free 1040ez Reliance on an agent (attorney, accountant, etc. H&r block free 1040ez ) is not reasonable cause for late filing. H&r block free 1040ez It is the personal representative's duty to file the returns for the decedent and the estate when due. H&r block free 1040ez Identification number. H&r block free 1040ez   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. H&r block free 1040ez You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. H&r block free 1040ez You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. H&r block free 1040ez   You can get an EIN by applying online at www. H&r block free 1040ez irs. H&r block free 1040ez gov (click on "Apply for an EIN Online" under the Tools heading). H&r block free 1040ez Generally, if you apply online, you will receive your EIN immediately upon completing the application. H&r block free 1040ez You can also apply using Form SS-4, Application for Employer Identification Number. H&r block free 1040ez Generally, if you apply by mail, it takes about 4 weeks to get your EIN. H&r block free 1040ez See the form instructions for other ways to apply. H&r block free 1040ez   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. H&r block free 1040ez After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. H&r block free 1040ez As the personal representative handling the estate, you must furnish this identification number to the payer. H&r block free 1040ez For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. H&r block free 1040ez If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. H&r block free 1040ez   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). H&r block free 1040ez Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. H&r block free 1040ez    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. H&r block free 1040ez Also do not use it to make estimated tax payments for a tax year after the year of death. H&r block free 1040ez Penalty. H&r block free 1040ez   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. H&r block free 1040ez You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. H&r block free 1040ez Notice of fiduciary relationship. H&r block free 1040ez   The term fiduciary means any person acting for another person. H&r block free 1040ez It applies to persons who have positions of trust on behalf of others. H&r block free 1040ez A personal representative for a decedent's estate is a fiduciary. H&r block free 1040ez Form 56. H&r block free 1040ez   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. H&r block free 1040ez Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. H&r block free 1040ez See the Instructions for Form 56 for filing requirements and other information. H&r block free 1040ez   File Form 56 as soon as all the necessary information (including the EIN) is available. H&r block free 1040ez It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. H&r block free 1040ez The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. H&r block free 1040ez Termination of fiduciary relationship. H&r block free 1040ez   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. H&r block free 1040ez See Form 56 and its instructions for more information. H&r block free 1040ez   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. H&r block free 1040ez See below for a discussion of these forms. H&r block free 1040ez Request for prompt assessment (charge) of tax. H&r block free 1040ez   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. H&r block free 1040ez However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. H&r block free 1040ez This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. H&r block free 1040ez This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. H&r block free 1040ez This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. H&r block free 1040ez Form 4810. H&r block free 1040ez   Form 4810 can be used for making this request. H&r block free 1040ez It must be filed separately from any other document. H&r block free 1040ez   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. H&r block free 1040ez You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. H&r block free 1040ez This applies even though the returns were filed before the decedent's death. H&r block free 1040ez Failure to report income. H&r block free 1040ez   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. H&r block free 1040ez However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. H&r block free 1040ez Request for discharge from personal liability for tax. H&r block free 1040ez   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. H&r block free 1040ez The request must be made after the returns for those taxes are filed. H&r block free 1040ez To make the request, file Form 5495. H&r block free 1040ez For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. H&r block free 1040ez   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. H&r block free 1040ez If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. H&r block free 1040ez If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. H&r block free 1040ez    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. H&r block free 1040ez Insolvent estate. H&r block free 1040ez   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. H&r block free 1040ez Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. H&r block free 1040ez The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. H&r block free 1040ez The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. H&r block free 1040ez Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. H&r block free 1040ez Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. H&r block free 1040ez If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. H&r block free 1040ez If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. H&r block free 1040ez If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. H&r block free 1040ez Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. H&r block free 1040ez A surviving spouse, under certain circumstances, may have to file the returns for the decedent. H&r block free 1040ez See Joint Return, later. H&r block free 1040ez Return for preceding year. H&r block free 1040ez   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. H&r block free 1040ez The return for that year will be a regular return and the personal representative must file it. H&r block free 1040ez Example. H&r block free 1040ez Samantha Smith died on March 21, 2013, before filing her 2012 tax return. H&r block free 1040ez Her personal representative must file her 2012 return by April 15, 2013. H&r block free 1040ez Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. H&r block free 1040ez Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. H&r block free 1040ez If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. H&r block free 1040ez If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. H&r block free 1040ez Third party designee. H&r block free 1040ez   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. H&r block free 1040ez This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. H&r block free 1040ez It also allows the designee to perform certain actions. H&r block free 1040ez See the Instructions for Form 1040 for details. H&r block free 1040ez Signature. H&r block free 1040ez   If a personal representative has been appointed, that person must sign the return. H&r block free 1040ez If it is a joint return, the surviving spouse must also sign it. H&r block free 1040ez If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. H&r block free 1040ez ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. H&r block free 1040ez ” Paid preparer. H&r block free 1040ez   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. H&r block free 1040ez See the Form 1040 instructions for details. H&r block free 1040ez When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. H&r block free 1040ez A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. H&r block free 1040ez However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. H&r block free 1040ez The tax return must be prepared for the year of death regardless of when during the year death occurred. H&r block free 1040ez Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. H&r block free 1040ez A tax return for a decedent can be electronically filed. H&r block free 1040ez A personal representative may also obtain an income tax filing extension on behalf of a decedent. H&r block free 1040ez Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. H&r block free 1040ez Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. H&r block free 1040ez It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. H&r block free 1040ez In general, filing status depends on whether the decedent was considered single or married at the time of death. H&r block free 1040ez See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. H&r block free 1040ez Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. H&r block free 1040ez Also, the decedent may be entitled to other credits that result in a refund. H&r block free 1040ez These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. H&r block free 1040ez Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. H&r block free 1040ez   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. H&r block free 1040ez   If the personal representative is filing a claim for refund on Form 1040X, Amended U. H&r block free 1040ez S. H&r block free 1040ez Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. H&r block free 1040ez Example. H&r block free 1040ez Edward Green died before filing his tax return. H&r block free 1040ez You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. H&r block free 1040ez You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. H&r block free 1040ez    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. H&r block free 1040ez Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. H&r block free 1040ez A new check will be issued in your name and mailed to you. H&r block free 1040ez Death certificate. H&r block free 1040ez   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. H&r block free 1040ez Instead, keep it for your records and provide it if requested. H&r block free 1040ez Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. H&r block free 1040ez S. H&r block free 1040ez Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. H&r block free 1040ez See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. H&r block free 1040ez Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. H&r block free 1040ez However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. H&r block free 1040ez This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. H&r block free 1040ez The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. H&r block free 1040ez A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. H&r block free 1040ez The filing status of the decedent in this instance is married filing a separate return. H&r block free 1040ez For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. H&r block free 1040ez Personal representative may revoke joint return election. H&r block free 1040ez   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. H&r block free 1040ez This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). H&r block free 1040ez The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. H&r block free 1040ez Relief from joint liability. H&r block free 1040ez   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. H&r block free 1040ez If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. H&r block free 1040ez For information on requesting this relief, see Publication 971, Innocent Spouse Relief. H&r block free 1040ez Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. H&r block free 1040ez The method of accounting regularly used by the decedent before death also determines the income includible on the final return. H&r block free 1040ez This section explains how some types of income are reported on the final return. H&r block free 1040ez For more information about accounting methods, see Publication 538, Accounting Periods and Methods. H&r block free 1040ez Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. H&r block free 1040ez Constructive receipt of income. H&r block free 1040ez   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. H&r block free 1040ez Include the interest income on the final return. H&r block free 1040ez   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. H&r block free 1040ez If the corporation customarily mailed its dividend checks, the dividend was includible when received. H&r block free 1040ez If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. H&r block free 1040ez Do not include the dividend in the final return. H&r block free 1040ez Accrual Method Generally, under an accrual method of accounting, income is reported when earned. H&r block free 1040ez If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. H&r block free 1040ez Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. H&r block free 1040ez A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. H&r block free 1040ez You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. H&r block free 1040ez For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). H&r block free 1040ez For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. H&r block free 1040ez If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. H&r block free 1040ez See U. H&r block free 1040ez S. H&r block free 1040ez savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. H&r block free 1040ez How to report. H&r block free 1040ez   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. H&r block free 1040ez Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. H&r block free 1040ez Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. H&r block free 1040ez Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. H&r block free 1040ez   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. H&r block free 1040ez    Note. H&r block free 1040ez If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. H&r block free 1040ez See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. H&r block free 1040ez Partnership Income The death of a partner closes the partnership's tax year for that partner. H&r block free 1040ez Generally, it does not close the partnership's tax year for the remaining partners. H&r block free 1040ez The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. H&r block free 1040ez To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. H&r block free 1040ez On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. H&r block free 1040ez The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). H&r block free 1040ez The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. H&r block free 1040ez Example. H&r block free 1040ez Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. H&r block free 1040ez The partnership uses a tax year ending June 30. H&r block free 1040ez Mary died August 31, 2013, and her estate established its tax year through August 31. H&r block free 1040ez The distributive share of partnership items based on the decedent's partnership interest is reported as follows. H&r block free 1040ez Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). H&r block free 1040ez Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. H&r block free 1040ez S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. H&r block free 1040ez The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). H&r block free 1040ez The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. H&r block free 1040ez Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. H&r block free 1040ez For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. H&r block free 1040ez For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. H&r block free 1040ez Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. H&r block free 1040ez For more information, see Publication 555, Community Property. H&r block free 1040ez HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. H&r block free 1040ez If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. H&r block free 1040ez The estate tax deduction, discussed later, does not apply to this amount. H&r block free 1040ez If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. H&r block free 1040ez For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. H&r block free 1040ez Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. H&r block free 1040ez The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. H&r block free 1040ez If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. H&r block free 1040ez The estate tax deduction, discussed later, does not apply to this amount. H&r block free 1040ez If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. H&r block free 1040ez The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. H&r block free 1040ez This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. H&r block free 1040ez For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. H&r block free 1040ez Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. H&r block free 1040ez These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. H&r block free 1040ez Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. H&r block free 1040ez For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. H&r block free 1040ez Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. H&r block free 1040ez Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. H&r block free 1040ez This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. H&r block free 1040ez See Medical Expenses, later. H&r block free 1040ez Exemptions You can claim the decedent's personal exemption on the final income tax return. H&r block free 1040ez If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. H&r block free 1040ez Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. H&r block free 1040ez For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. H&r block free 1040ez Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. H&r block free 1040ez This includes expenses for the decedent, as well as for the decedent's spouse and dependents. H&r block free 1040ez Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. H&r block free 1040ez In that case medical expenses exceeding 7. H&r block free 1040ez 5% of AGI may be deducted. H&r block free 1040ez Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. H&r block free 1040ez Election for decedent's expenses. H&r block free 1040ez   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). H&r block free 1040ez However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. H&r block free 1040ez   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). H&r block free 1040ez You can deduct expenses incurred in the year of death on the final income tax return. H&r block free 1040ez You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. H&r block free 1040ez   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. H&r block free 1040ez 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). H&r block free 1040ez Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. H&r block free 1040ez Making the election. H&r block free 1040ez   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. H&r block free 1040ez The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. H&r block free 1040ez This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. H&r block free 1040ez Example. H&r block free 1040ez Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. H&r block free 1040ez Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. H&r block free 1040ez Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. H&r block free 1040ez Richard itemized his deductions when he filed his 2012 income tax return. H&r block free 1040ez The personal representative of the estate paid the entire $800 liability in August 2013. H&r block free 1040ez The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. H&r block free 1040ez 5% limit. H&r block free 1040ez The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. H&r block free 1040ez 5% limit. H&r block free 1040ez The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. H&r block free 1040ez Medical expenses not paid by estate. H&r block free 1040ez   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. H&r block free 1040ez If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. H&r block free 1040ez Insurance reimbursements. H&r block free 1040ez   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. H&r block free 1040ez The reimbursements are also includible in the decedent's gross estate. H&r block free 1040ez No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. H&r block free 1040ez These expenses may be deductible for estate tax purposes on Form 706. H&r block free 1040ez Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. H&r block free 1040ez A net operating loss on the decedent's final income tax return can be carried back to prior years. H&r block free 1040ez (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. H&r block free 1040ez ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. H&r block free 1040ez At-risk loss limits. H&r block free 1040ez   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. H&r block free 1040ez   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. H&r block free 1040ez An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. H&r block free 1040ez An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. H&r block free 1040ez The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. H&r block free 1040ez For more information, see Publication 925, Passive Activity and At-Risk Rules. H&r block free 1040ez Passive activity rules. H&r block free 1040ez   A passive activity is any trade or business activity in which the taxpayer does not materially participate. H&r block free 1040ez To determine material participation, see Publication 925. H&r block free 1040ez Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. H&r block free 1040ez   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. H&r block free 1040ez Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. H&r block free 1040ez   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. H&r block free 1040ez Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. H&r block free 1040ez The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. H&r block free 1040ez   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. H&r block free 1040ez For more information, see Publication 925. H&r block free 1040ez Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. H&r block free 1040ez Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. H&r block free 1040ez Some of these credits are discussed next. H&r block free 1040ez Earned income credit. H&r block free 1040ez   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. H&r block free 1040ez If the allowable credit is more than the tax liability for the year, the excess is refunded. H&r block free 1040ez   For more information, see Publication 596, Earned Income Credit (EIC). H&r block free 1040ez Credit for the elderly or the disabled. H&r block free 1040ez   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. H&r block free 1040ez The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. H&r block free 1040ez   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. H&r block free 1040ez Child tax credit. H&r block free 1040ez   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. H&r block free 1040ez You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. H&r block free 1040ez For more information, see the Instructions for Form 1040. H&r block free 1040ez Adoption credit. H&r block free 1040ez   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. H&r block free 1040ez   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. H&r block free 1040ez See Form 8839, Qualified Adoption Expenses, and its instructions for more details. H&r block free 1040ez General business tax credit. H&r block free 1040ez   The general business credit available to a taxpayer is limited. H&r block free 1040ez Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. H&r block free 1040ez Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. H&r block free 1040ez   After the carryforward period, a deduction may be allowed for any unused business credit. H&r block free 1040ez If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. H&r block free 1040ez   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. H&r block free 1040ez Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. H&r block free 1040ez Self-employment tax. H&r block free 1040ez   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. H&r block free 1040ez 28 or more. H&r block free 1040ez Alternative minimum tax (AMT). H&r block free 1040ez   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. H&r block free 1040ez The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. H&r block free 1040ez In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. H&r block free 1040ez Form 6251. H&r block free 1040ez    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. H&r block free 1040ez See the form instructions for information on when you must attach Form 6251 to Form 1040. H&r block free 1040ez Form 8801. H&r block free 1040ez   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. H&r block free 1040ez See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. H&r block free 1040ez Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. H&r block free 1040ez Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. H&r block free 1040ez Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. H&r block free 1040ez For this purpose, a qualified hazardous duty area is treated as a combat zone. H&r block free 1040ez If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. H&r block free 1040ez If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. H&r block free 1040ez Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. H&r block free 1040ez If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. H&r block free 1040ez Also, if any tax was collected after the date of death, that amount will be credited or refunded. H&r block free 1040ez The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. H&r block free 1040ez This is true even if death actually occurred earlier. H&r block free 1040ez For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. H&r block free 1040ez Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. H&r block free 1040ez S. H&r block free 1040ez employee, and In a military or terrorist action. H&r block free 1040ez The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. H&r block free 1040ez Example. H&r block free 1040ez The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. H&r block free 1040ez S. H&r block free 1040ez employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. H&r block free 1040ez Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. H&r block free 1040ez Military or terrorist action defined. H&r block free 1040ez   A military or terrorist action means the following. H&r block free 1040ez Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. H&r block free 1040ez Any military action involving the U. H&r block free 1040ez S. H&r block free 1040ez Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. H&r block free 1040ez   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. H&r block free 1040ez Military action does not include training exercises. H&r block free 1040ez Any multinational force in which the United States is participating is treated as an ally of the United States. H&r block free 1040ez Determining if a terrorist activity or military action has occurred. H&r block free 1040ez   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. H&r block free 1040ez Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. H&r block free 1040ez Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. H&r block free 1040ez The April 19, 1995, terrorist attack on the Alfred P. H&r block free 1040ez Murrah Federal Building (Oklahoma City). H&r block free 1040ez The September 11, 2001, terrorist attacks. H&r block free 1040ez The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. H&r block free 1040ez The Act also exempts from federal income tax the following types of income. H&r block free 1040ez Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. H&r block free 1040ez Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. H&r block free 1040ez Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. H&r block free 1040ez Payments from the September 11th Victim Compensation Fund 2001. H&r block free 1040ez The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. H&r block free 1040ez See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. H&r block free 1040ez Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. H&r block free 1040ez The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. H&r block free 1040ez For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. H&r block free 1040ez However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). H&r block free 1040ez For more information on the Act, see Publication 3920. H&r block free 1040ez Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. H&r block free 1040ez If any tax is still due, it will be canceled. H&r block free 1040ez The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. H&r block free 1040ez If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. H&r block free 1040ez Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. H&r block free 1040ez This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. H&r block free 1040ez Filing a claim. H&r block free 1040ez   Use the following procedures to file a claim. H&r block free 1040ez If a U. H&r block free 1040ez S. H&r block free 1040ez individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. H&r block free 1040ez Form W-2, Wage and Tax Statement, must accompany all returns. H&r block free 1040ez If a U. H&r block free 1040ez S. H&r block free 1040ez individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. H&r block free 1040ez You must file a separate Form 1040X for each year in question. H&r block free 1040ez   You must file these returns and claims at the following address for regular mail (U. H&r block free 1040ez S. H&r block free 1040ez Postal Service). H&r block free 1040ez    Internal Revenue Service 333 W. H&r block free 1040ez Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. H&r block free 1040ez On the applicable return, write the same phrase on the line for total tax. H&r block free 1040ez If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. H&r block free 1040ez   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. H&r block free 1040ez On joint returns, make an allocation of the tax as described below under Joint returns. H&r block free 1040ez If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. H&r block free 1040ez   You must attach Form 1310 to all returns and claims for refund. H&r block free 1040ez However, for exceptions to filing Form 1310, see Form 1310. H&r block free 1040ez Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. H&r block free 1040ez   You must also attach proof of death that includes a statement that the individual was a U. H&r block free 1040ez S. H&r block free 1040ez employee on the date of injury and on the date of death and died as the result of a military or terrorist action. H&r block free 1040ez For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. H&r block free 1040ez For other U. H&r block free 1040ez S. H&r block free 1040ez civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. H&r block free 1040ez For other U. H&r block free 1040ez S. H&r block free 1040ez civilian employees killed overseas, attach a certification from the Department of State. H&r block free 1040ez   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. H&r block free 1040ez Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. H&r block free 1040ez Joint returns. H&r block free 1040ez   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. H&r block free 1040ez Determine the decedent's tax liability as follows. H&r block free 1040ez Figure the income tax for which the decedent would have been liable if a separate return had been filed. H&r block free 1040ez Figure the income tax for which the spouse would have been liable if a separate return had been filed. H&r block free 1040ez Multiply the joint tax liability by a fraction. H&r block free 1040ez The numerator of the fraction is the amount in (1), above. H&r block free 1040ez The denominator of the fraction is the total of (1) and (2). H&r block free 1040ez   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. H&r block free 1040ez Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. H&r block free 1040ez Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. H&r block free 1040ez If a personal representative has been appointed, the personal representative must sign the return. H&r block free 1040ez If it is a joint return, the surviving spouse must also sign it. H&r block free 1040ez If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. H&r block free 1040ez If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. H&r block free 1040ez ” To claim a refund for the decedent, do the following. H&r block free 1040ez If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. H&r block free 1040ez If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. H&r block free 1040ez (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. H&r block free 1040ez ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). H&r block free 1040ez If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. H&r block free 1040ez Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. H&r block free 1040ez Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. H&r block free 1040ez Joint return by surviving spouse. H&r block free 1040ez   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. H&r block free 1040ez Decedent as your dependent. H&r block free 1040ez   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. H&r block free 1040ez   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. H&r block free 1040ez To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. H&r block free 1040ez To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. H&r block free 1040ez Qualifying widows and widowers. H&r block free 1040ez   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. H&r block free 1040ez Requirements. H&r block free 1040ez   Generally, you qualify for this special benefit if you meet all of the following requirements. H&r block free 1040ez You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. H&r block free 1040ez You did not remarry before the end of the current tax year. H&r block free 1040ez You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. H&r block free 1040ez You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. H&r block free 1040ez Example. H&r block free 1040ez William Burns' wife died in 2010. H&r block free 1040ez William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. H&r block free 1040ez For 2010, he was entitled to file a joint return for himself and his deceased wife. H&r block free 1040ez For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. H&r block free 1040ez For later years, he may qualify to file as a head of household. H&r block free 1040ez Figuring your tax. H&r block free 1040ez   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. H&r block free 1040ez Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. H&r block free 1040ez   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. H&r block free 1040ez Joint return filing rules. H&r block free 1040ez   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. H&r block free 1040ez See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. H&r block free 1040ez Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. H&r block free 1040ez If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. H&r block free 1040ez This exclusion does not apply to certain income. H&r block free 1040ez For more information, see Publication 3920. H&r block free 1040ez How To Report Income in respect of a decedent must be included in the income of one of the following. H&r block free 1040ez The decedent's estate, if the estate receives it. H&r block free 1040ez The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. H&r block free 1040ez Any person to whom the estate properly distributes the right to receive it. H&r block free 1040ez If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. H&r block free 1040ez See Estate Tax Deduction, later. H&r block free 1040ez Example 1. H&r block free 1040ez Frank Johnson owned and operated an apple orchard. H&r block free 1040ez He used the cash method of accounting. H&r block free 1040ez He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. H&r block free 1040ez The proceeds from the sale are income in respect of a decedent. H&r block free 1040ez When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. H&r block free 1040ez When Frank's widow collects the $2,000, she must include that amount in her return. H&r block free 1040ez It is not reported on the final return of the decedent or on the return of the estate. H&r block free 1040ez Example 2. H&r block free 1040ez Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. H&r block free 1040ez The amount accrued from the sale of the apples would be included on his final return. H&r block free 1040ez Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. H&r block free 1040ez Example 3. H&r block free 1040ez On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. H&r block free 1040ez His adjusted basis in the tractor was $2,000. H&r block free 1040ez George died on February 15, before receiving payment. H&r block free 1040ez The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. H&r block free 1040ez In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. H&r block free 1040ez Example 4. H&r block free 1040ez Cathy O'Neil was entitled to a large salary payment at the date of her death. H&r block free 1040ez The amount was to be paid in five annual installments. H&r block free 1040ez The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. H&r block free 1040ez The payments are income in respect of a decedent. H&r block free 1040ez None of the payments were includible on Cathy's final return. H&r block free 1040ez The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. H&r block free 1040ez Example 5. H&r block free 1040ez You inherited the right to receive renewal commissions on life insurance sold by your father before his death. H&r block free 1040ez You inherited the right from your mother, who acquired it by bequest from your father. H&r block free 1040ez Your mother died before she received all the commissions she had the right to receive, so you received the rest. H&r block free 1040ez The commissions are income in respect of a decedent. H&r block free 1040ez None of these commissions were includible in your father's final return. H&r block free 1040ez The commissions received by your mother were included in her income. H&r block free 1040ez The commissions you received are not includible in your mother's income, even on her final return. H&r block free 1040ez You must include them in your income. H&r block free 1040ez Character of income. H&r block free 1040ez   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. H&r block free 1040ez If the income would have been a capital gain to the decedent, it will be a capital gain to you. H&r block free 1040ez Transfer of right to income. H&r block free 1040ez   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. H&r block free 1040ez   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. H&r block free 1040ez   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. H&r block free 1040ez See Installment obligations, later. H&r block free 1040ez Transfer defined. H&r block free 1040ez   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. H&r block free 1040ez Installment obligations. H&r block free 1040ez   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. H&r block free 1040ez Include in your income the same profit the decedent would have included had death not occurred. H&r block free 1040ez For more information, see Publication 537, Installment Sales. H&r block free 1040ez   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. H&r block free 1040ez Transfer to obligor. H&r block free 1040ez   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). H&r block free 1040ez A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. H&r block free 1040ez An obligation that becomes unenforceable is treated as having been canceled. H&r block free 1040ez   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. H&r block free 1040ez The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. H&r block free 1040ez   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. H&r block free 1040ez Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. H&r block free 1040ez Wages. H&r block free 1040ez   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. H&r block free 1040ez The income is not reduced by any amounts withheld by the employer. H&r block free 1040ez If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. H&r block free 1040ez   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. H&r block free 1040ez However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. H&r block free 1040ez These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. H&r block free 1040ez These wages are not included in box 1 of Form W-2. H&r block free 1040ez   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe