Filing taxes for a deceased person presents many difficulties, and detective style methods may be needed to file a return properly.
A tax return must be filed properly to ensure that the spouse or beneficiaries don't end up with less of an inheritance, in case taxes are owed and penalties could be assessed.
In any case, there is almost always someone who is required by law to take care of having the return prepared.
For the year of death, a joint return may be filed. For subsequent years, an Estate tax return may be required, and an EIN number must be applied for.
Often, the responsible party has trouble getting access to tax documents.
They may be locked out of the deceased person's online accounts until presenting certain documents, or going through a legal process called probate. In such a case, the bank's representatives won't speak about the accounts on the phone, either.
A good solution is to download the Wage & Income transcripts. The way to do this is for a surviving spouse or estate administrator (often a child of the deceased) to sign a Form 8821 or 2848 granting permission for a tax professional to download these files.
While e-signatures are normally valid for these forms, in this case they will have to be signed by hand for the IRS to accept them.
Once the transcripts are available, they can be analyzed to see what income sources were, and what the income was.
All income reported to the IRS by banks, brokerages, employers etc. are shown here. A tax return can be prepared based on this information.
Another benefit is that the transcript can be used as detective work to figure out income sources the inheritors may not be aware of. Sometimes accounts with hundreds of thousands of dollars in assets are found!
The balances of IRA accounts are shown on the transcript as well.
This can unveil accounts with large amounts of funds in them, which may have otherwise been left unclaimed and eventually forfeited to the state.
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