Tax Time & Estates: What Executors Should Know Before April 15 in New York

Handling tax season as executor of an estate in New York is understandably daunting! The good news is that while being an executor comes with specific obligations, it is manageable with the proper guidance and support. Having expert resources and an experienced team makes all the difference.

Gathering Essential Tax Documents

Before you can file anything with New York State or the IRS, you need a clear picture of the decedent's financial history. We strongly recommend gathering the decedent's tax returns for the last 1 to 2 years. These prior returns help you track down assets that you might not have known existed. For example, if the prior year's return shows dividends from a specific stock or interest from an investment account, you know to look for those assets. 

Understanding Different Tax Returns

In New York state, there are two distinct types of income tax returns involved when someone passes away: 

The Final 1040

The final 1040 is the decedent's personal income tax return. It covers the period from January 1 of the tax year up through the date of death. This return reports income earned by the person while they were alive.

The Fiduciary Tax Return

Any income earned after the date of death does not go on the personal 1040. Instead, it belongs on a fiduciary income tax return (Form 1041). 

Navigating these dates can be tricky.

While the Final 1040 generally follows the calendar year, the fiduciary return can sometimes operate on a fiscal year, allowing the estate to choose a tax year-end that provides the best tax advantage for the beneficiaries.  It is important to discuss the best filing date with a Certified Public Accountant (CPA).

Delays and Challenges

The probate process in New York can take time, and the IRS calendar does not stop while the Court processes paperwork. This may create a timing conflict for executors.

Delays in Appointment

As an executor, you do not have the legal authority to sign a tax return or access estate funds until the court officially appoints you. That doesn't mean you can ignore the deadline if April 15 arrives and you haven't been appointed yet. In these situations, an experienced accountant might advise paying the IRS and New York State to avoid interest charges, even if the return is filed later.  However, these circumstances are unique and you should absolutely speak with an accountant before doing so.

Using Personal Funds

Because you cannot access the decedent's bank accounts until you are appointed, executors sometimes have to pay these initial tax estimates out of pocket. It is vital to keep impeccable records of any personal funds used for estate expenses so that you can be reimbursed appropriately once the estate accounts are open.

The Importance of Expert Assistance

Estate taxes are complex, and using tax software to complete them is a hard no.  It's essential to choose a tax preparer who regularly handles estate and fiduciary returns. Your usual accountant may not have the specialized knowledge required. Always ask if your CPA has filed estate returns before and ensure they understand the unique requirements involved.

Protecting the Estate and Yourself

Being an executor is a significant responsibility, and you shouldn't manage it alone. The complexities make professional guidance essential. We can connect you with trusted accounting professionals who specialize in estate and fiduciary taxes.

Contact our team today to ensure you have the support you need to fulfill your duties with confidence!