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“Most kitchens have the same spices in the spice rack. That does not mean everyone is a good cook.”
– anonymous
When a spouse, parent, sibling, or other loved one dies, administering their estate becomes the responsibility of a family member or professional. If you are not a professional, expect to be thrusted into details of the Internal Revenue Code after the death of a loved one.
It’s not impossible for a layman to learn about the arcane rules of estate administration, but it is a daunting challenge for a lot of people. Below are three questions to test your knowledge of estate administration and learn more about the topic. You’re not expected to score well. The point is to encourage forethought and careful planning by challenging individuals to think about what will happen when they die or lose a loved one and administering the estate becomes a burden at a bad time.
1. What is form SS-4 used for during an estate administration?
The correct answer is b. Use Form SS-4 to apply for an employer identification number (EIN). An EIN is a 9-digit number (for example, 12-3456789) assigned to estates (as well as employers, sole proprietors, corporations, partnerships, trusts, certain individuals, and other entities) for tax filing and reporting purposes.
When someone dies, their surviving spouse or representative files the deceased person's final tax return. On the final tax return, the surviving spouse or representative tells the IRS that the person has died. The IRS doesn't need any other notification of the death.
A professional fiduciary can be designated to assist with estate administration, sparing a spouse, sibling, parent or other loved one from the responsibility of administering an estate. Form 56 is used to designate a fiduciary. File Form 56 with the Internal Revenue Service Center where the person for whom you are acting is required to file tax returns. An executor’s liability has nothing to do with SS-4, by the way.
2. What is NOT true about the final 1040?
The correct answer is b. The Internal Revenue Service will NOT refund or credit taxpayer’s account if they are due a refund if a return is not filed. A surviving spouse, executor, estate administrator or other legal representative of a deceased person and their estate has many responsibilities in filing a deceased person’s final return, as explained here in detail by the IRS.
3. What is NOT true about the decedent’s final medical expenses?
The correct answer is c. It is not uncommon for the cost of health care in the year of death to soar. Nor is it not uncommon for medical expenses to exceed the 7.5% threshold on deductibility. If you itemize deductions, you can deduct qualifying medical and dental expenses that exceed 7.5% of your adjusted gross income and, thus, greater than the standard deduction. You can only include the medical expenses you paid during the tax-filing year. Here’s an IRS brief on the topic.
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