Tax Compliance

Key Tax Considerations for Small and Large Estates

Even small estates and trusts with very little have numerous income tax issues that demand careful considerations.  Trusts with values sufficient to be subject to estate taxes or trusts with business holdings and real property have even more taxation complexities.  Become familiar with the key tax considerations in your estate.

Obtain a Taxpayer Identification Number

If a bank account is needed, a taxpayer identification number is often needed by an estate or trust.  For additional information, read the IRS information about Taxpayer Identification Numbers.  To apply for a taxpayer identification number yourself, visit the IRS application webpage for Employer ID Numbers.  If you are going to request that a third party apply on your behalf, be certain to authorize them to do so using form SS-4.

File a Trust or Estate Tax Return

If timely filed, some tax elections can help to save estate taxes or step-up basis for capital gains taxes.  Also, if the trust or estate itself is producing income, it may be necessary to file an income tax return for Trusts and Estates using Form 1041.  It is best to consult with an attorney regarding taxes for estates or trusts.

Final Income Tax Returns

When an individual dies, the personal representative must file taxes using form 1040.  Where income earned by the decedent has not been taxed, there will be Income in Respect of a Decedent due.  The Executor or Personal Representative will write the word "Deceased" on the form, and can check the "Yes" box for Third Party Designee.  Also, the Executor or Personal Representative will sign the tax return.  Consult with an attorney to ensure the final tax return is correctly prepared.