Tax Reporting at Death

February 01, 2017 by Justin Prince

When a family member passes away, grieving relatives do not typically contemplate the decedent’s basic tax reporting obligations. Personal representatives of estates, trustees of trusts, and anyone assisting with the finances of a deceased should be aware of various returns that need to be filed with the IRS and the Wisconsin Department of Revenue (assuming the decedent was a resident at the time of passing) for taxation of income generated before and after death.

First, a final individual income tax return must be filed for the calendar or fiscal year of death; all income up to the date of death must be reported and all credits and deductions to which the decedent is entitled may be claimed. The decedent also remains liable for prior years that which the decedent failed to report.

Second, a fiduciary return, namely the federal Form 1041 and Wisconsin Form 2 for estates and trusts, may be required to report a decedent’s taxable income generated after the date of death. Generally, a fiduciary return is required when an estate or trust (1) exists by court order, (2) generates gross income exceeding $600 for any tax year following the year in which the decedent passed, or (3) has a non-resident alien as a beneficiary. The decedent and the estate are separate taxable entities; thus, before filing Form 1041, the preparer will need to obtain a tax ID number specifically for the estate. Further, income distributions from an estate or trust to any beneficiary must be reported on a Schedule K-1 return, which will be included on each beneficiary’s personal income tax return.

To close a Wisconsin probate estate, the court will require that the personal representative provide a Closing Certificate from the Wisconsin Department of Revenue, which can be obtained only after filing a Form 2.

Attorney Justin M. Prince