Executor Duties Checklist: Filing Taxes

This is the eleventh of a series on the duties of an executor. Think of it like a checklist, with everything an executor needs to take care of. To make this list as comprehensive as possible, we’ve divided the series into 12 parts.

To view the series in its entirety, follow this guide:

Part 1: Handling Immediate Matters
Part 2: Gathering Documents and Funeral Planning
Part 3: Notifying Accounts and Collecting Information
Part 4: Tying Up Loose Ends
Part 5: Taking Inventory
Part 6: Decisions Regarding the Estate
Part 7: Administrative Duties
Part 8: Applying for Benefits (For Spouses/Beneficiaries)
Part 9: Managing the Trust Account (If Applicable)
Part 10: Distributing Assets
Part 11: Filing Taxes
Part 12: Finalizing the Estate

One of the final steps in executing an estate is ensuring your loved one’s income taxes are filed and squared away.

This is an essential part of your role as an executor. Keep in mind that you will not be filing these taxes as yourself or as the deceased - you’ll be filing as the “the Estate of…”

First, ensure you organize all important documents. That will make this part of the process easier. Then, make sure nothing has been missed in a previous tax year.

Check for outstanding returns

If the deceased has failed to file or pay taxes in a prior year, this falls to the executor handle. Ensure you look into this and check to make sure there are no balances owing from prior years. If so, those funds can be paid from the estate, providing funds are available.

As there are distinct differences between filing taxes on behalf of an estate in the United States and Canada, we’ve broken this guide out by country.

Consult an expert

Filing taxes can be complex - especially if the deceased was a high income earner or has complex deductions and credits. If the estate has funds available to consult an accountant, it may be worth looking into in order to maximize any potential refunds and avoid any errors in accounting.

Filing in Canada

In Canada, it is mandatory that a final tax return be filed for a deceased person for the year of their death. There are also three optional tax returns.

On the final return, income earned by the deceased person from the beginning of the year to the date of death must be reported.

For a death that occurs between Jan. 1 and Oct. 31, the tax return can be filed by Apr. 30 of the following year. If the death occurs between Nov. 1 and Dec. 31, an executor has six months to file the return.

The filing and payment deadlines are the same.

What should the tax return include?

First things first, identify yourself - and be clear the tax return is for your loved one.

Enter their information in all of the boxes, but write "The Estate of the Late" before the name of the deceased. Be sure to include your address as the return address so no important mail is missed.

The tax return for the deceased should include any and all income earned in the year of their death.

Typical line items that are reported on a final tax return include:

Employment income
Old age security pension
CPP or QPP benefits (depending on if the deceased is a resident of Quebec or not)
Other pensions or superannuation
Elected split-pension amount
Employment Insurance benefits
Investment income
Registered disability savings plan (RDSP)
Taxable capital gains arising from deemed disposition of property
RRSP income
Self-employment and other types of income

This is where your organizational skills will come in handy.

Throughout this checklist, we have identified documents you need to collect and accounts you need to have access to in order to tally up income and expenses.

You need to calculate total income, net income, taxable income and tax credits in order to determine the refund or balance owing.

As the executor, you are the legal representation of the deceased. Once complete, you will sign your name and title (in this case, executor) on the last page of the return in the area provided.

Income earned after the date of death, like severance pay received because of death - for example, must be reported on the T3. T3 is the Trust Income Tax and Information Return.

Canada Revenue Agency has a detailed guide on T3s available here.

What if I file late?

If you file the final return late, there are penalties if there is a balance owing. There is a penalty of 5 percent, plus 1 percent of the balance owing for each month the return is late, for up to 12 months.

You can avoid the penalty by filing the return on time - even if you’re unable to pay the full amount. Depending on your case, the penalty owing may be waived - but it requires working with the CRA on a situational basis.

Optional tax returns

These returns aren’t required, but they can help reduce the overall income tax owing.

They are used for reporting some of the income that would otherwise be reported on the final tax return. By reporting this income in a different way, you have the potential of reducing or even eliminating overall taxes owing.

The three optional returns are:

Return for rights or things: These are amounts that were not paid to the deceased at the time of death, but would have been included in their income. In the case of someone who was working for an employer at the time, this could include things like vacation pay or commissions.

Return for a partner or proprietor: This applies to someone who was in a partnership or ran a sole proprietorship, in the case their businesses’ fiscal year is different than the calendar year.

Return for income from a graduated rate estate: You can file an optional return for the deceased if they received income from a graduated rate estate (GRE). A graduated rate estate is a type of trust. It may have a different fiscal year than the calendar year, for which you can file an optional return.

Filing in the United States

In the United States, a final tax return is required for all income earned up to the date of death - providing the deceased earned more than the standard threshold or minimum deduction. Any income earned after the date of death is considered income earned by the estate - not the individual - which requires a separate tax return.

Filing for a deceased person has a few additional steps, but the bulk of the work resembles a standard income tax filing process.

The IRS has a detailed guide on filing taxes available here.

You use the IRS Form 1040, ensuring to note the date of death and include the word “Deceased” at the top of the document by the person’s name.

The deadline for filing taxes for a deceased person is the same as filing for anyone else - April 15. Depending on the date of death and the complexity of the estate, this may be a difficult deadline to meet.

You are able to file for an extension for an additional six months, but it only changes the filing deadline. Money owed is still due by the deadline, otherwise you may face penalties.

What if I file late?

As an executor, you’re faced with a lot of responsibility - on top of juggling with the loss of a loved one. However, filing and paying income taxes owed can’t take a backseat without accruing additional costs. That’s why it’s important to stay on top of tax-specific tasks.

The Failure to File Penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty is capped at 25% of unpaid taxes. The Failure to Pay Penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. It is also capped at 25% of unpaid taxes. If both penalties apply in the same month, the Failure to File Penalty will be reduced by the amount of the Failure to Pay Penalty applied in that month.

The IRS has a detailed guide on filing taxes available here.

What should the tax return include?

The tax return should include all gross income and assets received from employment (including self-employment income), pension, investments, disability payments, IRAs and retirement plans. Roth IRAs are excluded from the above.

If the deceased was a higher income earner, Social Security earnings may be considered taxable.

The tax return should also include eligible expenses that can be claimed as deductions, like medical expenses.

Although a return may not be required, if the deceased stands to earn a refund, it’s recommended to file regardless to ensure that refund can be allocated to the estate.

Important IRS forms for filing taxes

There are a few specific forms you’ll need to fill out in order to file taxes, identify yourself as the executor and record income gains or losses for the estate.

These include:

IRS Form 1040 to file for the year of death.
Form 56: This form identifies you as the executor or trustee of the estate.
Form 1310: In the event there is a refund, this form designates the estate as the recipient of that refund. Note, surviving spouses are not required to fill out this form.
Form 1041: This form covers all income earned or lost by the estate and covers income that may be held for distribution to beneficiaries.

Next in the Executor Duties Checklist, finalizing the estate.