Deductible Funeral Expenses
Being the executor or CPA of a will is never easy. You spend a lot of time and money dealing with funeral arrangements while fulfilling the wishes of your loved one. There are expenses from the funeral that are deductible from the estate. Other expenses, such as medical, can also be deducted from your taxes. However, most funeral expenses are not tax deductible.
If you’re the executor or CPA of a will, there are many legal deductions you can make to the estate. This article tells you how a funeral and estate can affect your taxes.
What You Can Claim After Death
The descendant’s medical expenses can be claimed on your taxes. Start by itemizing these expenses on your tax return using Form 706. Once you do this, you cannot take the standard deduction. Calculate both just to see if the standard tax or the itemized tax is lowest.
Deductible medical expenses may include some of the following:
- Doctors and hospital fees
- Lab services and prescriptions
- Medical supplies and equipment
- Dental exams and vision care
- Associated tolls and fees from medical treatments
If the itemized deduction is more than the standard deduction, you need to complete Form 1040, Schedule A. If the itemized deduction is less than the standard, take the standard deduction.
In some states, other administrative expenses, such as probate, appraisals, and legal fees can be deducted. Ask your lawyer about what your state considers a deductible expense from all related expenses from your loved one’s death.
Also Read: What’s Probate and How To Avoid It
Estate Tax Deductions
As the executor or CPA, there may be some funeral expenses you want to deduct from your taxes. This is especially true if you’ve had to pay out-of-pocket for the funeral. The IRS likely won’t allow you to deduct these expenses from your own taxes, but if your loved one had an estate, the expenses should be deducted from there.
Estate tax deductions are allowed for most of the funeral expenses. Most estates cover all the funeral costs, including:
- Religious ceremonies
The estate must pay for all these costs, which can then be deducted from the estate taxes. If the funeral is paid for by a family member or another benefactor, the estate loses the deduction. Claim any funeral expenses paid for by the estate. Do not claim this deduction on your individual tax return.
CPAs should consult a lawyer to help fill out Form 706. This form compiles the decedent’s assets, liabilities, and deductions to determine the estate’s taxes.
Also Read: How Attorneys Plan Estates In 8 Steps
Form 706, Explained
Form 706 is the Generation-Skipping Transfer Tax Return. It calculates the tax (GST) owed by an estate. The form must be filed within 9 months after your loved one’s departure.
You can file for an extension with Form 4768 if you need more time.
Form 706 is 29 pages split into six parts. Each part provides instructions for how the estate’s taxes are calculated and deducted.
Part One – Decedent and Executor
Here, you’ll declare yourself as the executor to the decedent’s will and estate. Include information on the decedent and yourself, such as names, SSNs, and addresses.
Part Two – Tax Computation
This section calculates the owed estate taxes. This may become complicated, so it’s best to have your accountant or lawyer review this section, specifically.
Part Three – Elections by the Executor
In this section, you’ll check boxes specifying whether you’re making any elections. This includes options like postponing taxes or paying in installments.
Part Four – General Information
This section confirms all information about the departed, such as their material status and death certificate number. You may need to provide additional information in this section.
Part Five – Recapitulation
This section calculates the estate’s gross value and totals all assets. This may include stocks, bonds, or real estate.
Part Six – Portability of Deceased Spousal Unused Exclusion (DSUE)
In this section, you’ll opt out of the DSUE or claim the DSUE amount to be transferred. It allows any unused exemptions to be transferred to a living spouse.
CPAs filing a 706 should consult a wills and estates lawyer. If you’re an executor, the administering lawyer will walk you through what tax forms you’ll need to file. If you don’t have a lawyer or an estate, call MyCaseHelper to speak with a qualified lawyer in your area. We’ll connect you with a wills and estate attorney who can walk you through this process.
In instances when property is held between joint tenants, there may be special rules over securities and property transfers. Consult with an attorney if you’re filing as joint tenants.
Also Read: Wills and Estate Lawyers
Reporting and Reimbursing Funeral Expenses
Report your funeral and administrative expenses on Form 706, Schedule J. This should be an itemized list that includes all the funeral expenses plus the total cost of the funeral.
If the executor’s commissions, legal fees, and other administrative expenses are claimed as an estate tax deduction, they cannot be considered a deduction on your federal income taxes.
If the estate was reimbursed for funeral costs, either because a family member or other benefactor fulfilled, you must deduct the reimbursement from the total expenses before claiming them. Be sure to include government assistance, such as social security and veteran’s assistance. These items are not eligible for a deduction.
On Schedule K, claim any of the decent’s outstanding debts, mortgages, and liens. Be sure that the listed deductions on Schedule K falls within your state’s laws.
List all expenses on these two forms. This shows you the estate’s total value and the lifetime exclusion credit for the year the descended died.
Need a Lawyer?
Figuring out taxes after a loved one died can be complicated. Whether you need help navigating your loved one’s estate or want tax advice, MyCaseHelper can connect you with a qualified lawyer near you. MyCaseHelper works with tax lawyers and estate lawyers in all 50 states. Call today to arrange a free consultation and get the legal help you need.
Also Read: Tax Lawyers