Filing the final return

Dear Tax Talk,
My dad just died and I am the trustee. He did not file taxes for the year 2003. Can I file them now? Also, what kind of taxes and forms do I have to get to file for this part of 2004 and what death taxes are involved? -- Barbara

Dear Barbara,
My sympathies are with you on your dad's passing.

You don't say how much your dad had in the way of assets. If he died in 2004 with less than $1.5 million in assets then there is no need to file a federal estate tax return (Form 706).

However, you also need to check with your state's department of taxation to determine the exemption from state death taxes. For example, the following jurisdictions at last look were not increasing the exemption threshold beyond 2003's $1 million exemption: District of Columbia, New Jersey, New York, Pennsylvania and Rhode Island.

If you have to complete a federal Form 706, you should hire a qualified accountant to get the job done. As an executor you have to plan your work and work your plan. There are a lot of things to get done, both tax- and non-tax related, and you also have responsibilities to the tax authorities, the courts and the beneficiaries.

First thing you have to do is get the will admitted in probate and get appointed personal representative. As personal representative, you will need to complete Internal Revenue Service Form 56 to let it know you're in charge of your father's affairs. You'll also need these to access his old bank accounts and other assets and to open a bank account for the estate.

You should also get his 2003 Form 1040 filed and you'll also need to do a 2004 Form 1040 through date of death that includes the income he received prior to passing. Any income earned after he died belongs to the estate and you'll need to do an estate income tax return: Form 1041. (This link is for the 2003 version; forms for tax year 2004 are not yet available but this link should update automatically when the IRS posts the 2004 version.)

The 2004 return is due anytime prior to April 15, 2005. The Form 1041 for 2004 can be for a period other than a calendar year but has to end on the last day of a month less than 12 months from his death. For example, if he died on May 31, you can close the estate's tax year by the following April 30. By choosing this extra period of time, maybe you can wind up the estate by then and avoid having to do a second or third form 1041. The return is due by the 15th day of the fourth month following the close of the estate's tax year (Aug. 15 in the above example).

You may also want to check out IRS Publication 559, Survivors, Executors and Administrators. Alternatively, there are a myriad of books on this subject, including my favorite, "Estate Planning for Dummies."