Taxes, At First: Part 12a of Financial Considerations When You Lose Your Spouse

When you were young together, you could ride roller coasters and eat spicy food. Back then, your W2 came in the mail; no nagging each other to figure how to log in to ADP or Trinet to pull it.

Taxes alone are even more awful than when you were young. And together. In our series on how to manage finances after the death of a spouse, we’re exploring tips from FINRA, a reliable financial source. Today, Tip 12a: Taxes, At First.

And the Two Shall Become One

When a single person with no spouse dies, the forms that are required and the steps that must be taken are somewhat different than when there is a surviving spouse. You can think of it as the IRS treating you and your spouse as one “entity,” and in the year you lose your spouse, you and your assets and your income continue to be one entity in the IRS’ (and your own!) mind.

Example – Taxes for One

Let’s first look at the tax return requirements for a single person, Jane, who dies on May 5 of 2019. Jane’s income, dividends, stock sale profits, etc. earned in 2019 up until her death would be included on her Form 1040 for 2019. That makes sense because after a person has died, they technically can’t “earn” income. At that point, after death, an “estate” is created with a new tax number.

At that point, an additional form, Form 1041, Income Taxes for Estates and Trusts Return would also need to be filed. Any income attributed to unmarried Jane after her date of death, called “income in respect of a decedent” (IRD) and is reported on that Form 1041 as part of deceased Jane’s “estate” rather than as income on a Form 1040. There are lots of fancy, rich-peopl