Understanding Final Return
Final return refers to the last tax return that needs to be filed when an individual passes away. This return is typically filed by the deceased person’s executor or personal representative and includes all income earned up until the date of death.
Importance of Final Return
Filing a final return is crucial to ensure that all taxes owed by the deceased are settled. It also helps in properly distributing the estate’s assets among the beneficiaries.
What to Include
The final return should include all sources of income such as wages, dividends, interest, and rental income. Deductions and credits can also be claimed to minimize the tax liability.
Example Scenario
John, a retired individual, passed away in January 2021. His executor filed a final return that included income from his pension, investments, and rental property. After deductions, the estate owed a certain amount in taxes which was paid from the estate’s funds.
Case Study: Estate of Mary Smith
Mary Smith, a successful businesswoman, passed away in 2019. Her estate consisted of a large portfolio of stocks and real estate assets. The executor filed a final return that accounted for all her income and deductions. The estate owed a significant amount in taxes which was paid from the estate’s assets before distributing them among the beneficiaries.
Statistics on Final Returns
- According to the IRS, over 2.72 million final returns were filed in 2020.
- The average tax liability on final returns was $27,496.
- Failure to file a final return can result in penalties and interest charges.
