Filing Options for Your
Final Form 1040
we can't escape death or taxes, we may be able to minimize
the federal income taxes due on our final Form 1040.
Filing a tax return after we die (we are then known as the
"decedent") is probably not something most of us think much
But, a final Form 1040 generally must be filed for the year of
our death and, just as in life, is typically due by April
15th of the following year.
Normal tax accounting rules regarding the recognition of
income and deductions generally apply for this final return.
And, as is the case during life, tax planning opportunities
are available both when death is imminent and after death. For
instance, several decisions can affect the income or
deductions reported on that final return. However, as we will
discuss below, a major decision for married individuals
concerns whether to file a joint return for the year of death.
When a married taxpayer dies and the surviving spouse does not
remarry during the year, the spouse may file a joint return
with the decedent for the year of death, but is not required
to do so. The joint return will include income and deductions
for the decedent prior to the date of death and the surviving
spouse's income and deductions for the entire year.
the surviving spouse remarries before the close of the tax
year that includes the date of death, the spouse may not file
jointly with the decedent. Instead, a separate return must be
prepared for the decedent. Listed below are some of the
advantages and disadvantages for joint filers to consider when
filing that final return.
Advantages of Filing a Joint Return.
Since the surviving spouse's tax year does not end upon the
death of the decedent, it may be possible to reduce their
combined income tax liability by accelerating or postponing
income or deductions to maximize use of the joint tax rates.
Some other benefits include, but are not limited to: (a) use
of one spouse's excess deductions against the income of the
other spouse (e.g., excess charitable contributions); (b) an
increase in the IRA contribution limit (because of the spousal
IRA rules); and (c) the ability of the decedent's net
operating loss (NOL), capital loss, and passive activity loss
(subject to the limitation) carryovers to offset income of the
surviving spouse. Note that any NOL or capital loss carryover
of the decedent that is not used on the final return (whether
separate or joint) will expire unused.
Disadvantages of Filing a Joint Return.
Filing a joint return with the surviving spouse is not always
the best option. One disadvantage of filing a joint return for
the decedent's final tax year is that the decedent's estate
and the surviving spouse are jointly and severally liable for
any tax, interest, and penalties due on the joint return. In
addition, when the surviving spouse is not the sole
beneficiary of the estate, the decedent's personal
representative may not be willing to expose the estate to
potential unknown liabilities (e.g., tax on the surviving
spouse's unreported income). Potentially, this exposure may be
avoided because of the innocent spouse rules.
Also, filing a joint return can negatively impact the amount
of the decedent's deductions that are subject to adjusted
gross income (AGI) limitations (e.g., medical, casualty,
miscellaneous itemized) since AGI is based on joint income
rather than separate income. Finally, the surviving spouse
must cooperate with the decedent's personal representative by
sharing the information necessary to prepare the return and by
signing the return once it is prepared.
Planning for that final 1040 is something we may not think
much about, but it is a good idea all the same.
Maximizing the Deduction for
starting a new business or acquiring the assets of an existing
business often incur start-up expenses, which can be
considerable, in the investigation and acquisition phase
before actual business operations begin.
Most start-up expenditures can be segregated into two broad
categories: (a) investigatory expenses and (b) business
Taxpayers can immediately deduct up to $5,000 of
start-up expenses in the year when active conduct of a
business begins. However, the $5,000 instant deduction
allowance is reduced dollar for dollar by cumulative start-up
expens-es in excess of $50,000 for the business in question.
Start-up expenses that cannot be immediately deducted in the
year a business begins must be capitalized and amortized over
180 months on a straight-line basis. In many cases, start-up
expenses for small businesses will be modest enough to qualify
for immediate deduction under the $5,000 instant deduction
allowance in the year when active conduct of business
Example: Claiming the deduction for start-up expenses.
Suzie (a calendar-year taxpayer) incurs $4,200 of start-up
expenses in 2012 before opening her new car wash in November
of 2012. Suzie's 2012 deduction is $4,200. Since her start-up
expenses did not exceed $50,000, she can deduct the entire
$4,200 in 2012.
NOTE: A taxpayer is not
considered to be engaged in carrying on a trade or business
until the business has begun to function as a going concern
and has performed the activities for which it was organized.
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W. Edward Newton Jr.,
Certified Public Accountant