Do I Have To Pay a Relative's Taxes After They Die?

Do I Have To Pay a Relative's Taxes After They Die?

Lee Huffman  Sat, December 17, 2022

When a loved one passes away, it can be an emotional experience. Unfortunately, handling the deceased’s finances can add to this stress. While most people know that you need to file a final tax return for the deceased, most people don’t know how to handle income received after the person has died. This income is known as “income in respect of a decedent” (IRD), and it has its own special rules. Consider working with a financial advisor as you prepare an estate plan or implement a loved one’s estate plan.

What Is Income in Respect of a Decedent?

Income in respect of a decedent (IRD) is the income received after someone dies but not included in the person’s final tax return. When beneficiaries take over a deceased person’s finances, the situation can be complicated. This is especially true if they owned a business, had many types of bank and investment accounts, or were unorganized.

Examples of IRD include:

Uncollected salary, wages, bonuses, commissions and vacation or sick pay

Distributions from deferred compensation

Stock options exercised

Taxable distributions from retirement accounts

Interest on bank accounts

Dividends and capital gains from investments

Accounts receivable paid to a small business owned by the decedent (cash-basis only)

This is a good reminder that people should have a detailed list of financial accounts and investments for beneficiaries to refer to. This will give them a to-do list to notify them of your death and to avoid any accounts getting lost in the shuffle.

How Is IRD Taxed?

IRD is income that would have been included in the deceased’s tax returns had they not passed away. If this income was not included in the final tax return, then it is considered IRD. Where IRD is reported depends on who received the income. If paid to the estate, it should be included on the fiduciary return. When IRD is paid directly to a beneficiary, then the beneficiary should include it in their tax return.

To continue reading, please go to the original article here:

https://news.yahoo.com/pay-relatives-taxes-die-130012175.html