Return for deceased

[Earl]

Had an interesting question from possible client. Her husband died last year 2010. She did not work and had no income other than social security. Her husband did work prior to death and made substantial wages.

Normally when he filed his return he had to pay additional.

She now asks why does she have to file a return since she is not required to file (only social security). They do not own any assets so there was no one appointed to handle the husbands estate or to file tax return.

What happens if she does not file for herself or for her husband. Is she required to file for the husband since no one was appointed to handle his affairs.

[Burke]

As the surviving spouse, she presumably paid for funeral expenses and wrapped up his outstanding debts, etc, You do not give the date of death. If he only lived 1/2 of the year, it is possible he does (they do) not owe this year or may get a refund. Has she even checked? If a spouse dies during the year, they are considered married for the entire year if the surviving spouse does not remarry. So it is her responsibility to file a return. Some of her SS may be taxable. I suppose she could file MFS and let the chips fall where they may.

[BOB W]

As the surviving spouse, she presumably paid for funeral expenses and wrapped up his outstanding debts, etc, You do not give the date of death. If he only lived 1/2 of the year, it is possible he does (they do) not owe this year or may get a refund. Has she even checked? If a spouse dies during the year, they are considered married for the entire year if the surviving spouse does not remarry. So it is her responsibility to file a return. Some of her SS may be taxable. I suppose she could file MFS and let the chips fall where they may.

MFS requires ALL SS to be included in income....?????

Wife has the responsibility to file a return for the deceased...........

[Koss]

Observations

(1) I certainly agree that the only way to really address the client's concerns is to try preparing the return a couple different ways, to see what the outcome is.

(2) MFS does not trigger taxation of all social security benefits. If the filing status is MFS and the taxpayer lived with the spouse at any time during the year (which she did), and she had no other income of any kind whatsoever, then 85% of half of her social security benefits will be treated as taxable income.

So, if her only income is, for example, $20,000 in social security benefits, then she will report the entire $20,000 on line 20a, and enter $8,500 on line 20b. In this example, her AGI will be $8,500, and her tax liability will be zero, because even if she is under age 65, her standard deduction and personal exemption reduce her taxable income to zero.

This example does make the assumption that she will use the standard deduction, which may or may not be correct. We have no real data about her husband's income, or what itemized deductions may be available to either of them.

(3) If she is the executor or administrator of his estate, or if there is no executor or administrator and she is the personal representative, then I agree with Burke that she may be responsible for filing his final tax return. However, if she chooses MFS, she is not necessarily personally liable for the payment of any balance due on his final return. If there is no estate, the IRS may not be able to collect any balance due.

(4) I also agree that if he had any withholding, they may in fact get a refund on a joint return. So again, the only way to know for sure is to try it both ways. You may even have to play around a bit with the impact of itemized versus standard. If there is a mortgage and property tax involved, and the home was jointly owned, and they were both liable on the mortgage note, then she can choose MFS and split the itemized deductions...

BMK

[Koss]

Taxable Social Security

See the worksheet on page 26 of the instructions for Form 1040.

Or see the attachment to this post, which is the same worksheet, produced by my software, for the example we are discussing: $20,000 social security benefits, MFS, lived with spouse, no other income.

Taxable social security benefits in this scenario are 85% of half of the benefits.

You are correct that the base amount is zero. But there are some other steps to the calculation of taxable benefits.

BMK

[BOB W]

See the worksheet on page 26 of the instructions for Form 1040.

Or see the attachment to this post, which is the same worksheet, produced by my software, for the example we are discussing: $20,000 social security benefits, MFS, lived with spouse, no other income.

Taxable social security benefits in this scenario are 85% of half of the benefits.

You are correct that the base amount is zero. But there are some other steps to the calculation of taxable benefits.

BMK

Sorry about that......... I deleted my post because I tested my reply and found that you are correct...................I had hoped that you did not see it..... O well...........

[Koss]

No problem...

I learned something myself. Like you, I tested it, and I was a bit surprised.

I'm not sure it is possible to state the formula for calculating taxable social security benefits in one sentence that is coherent and grammatical, even when the filing status is something other than MFS. The formula is incredibly convoluted.

It is one thing to tell a client, "well, because you have $44,000 in other income, besides your social security benefits, the law says you have to include part of your social security benefits in your income." The concept isn't that difficult. But explaining the calculation in plain English, without the worksheet, or trying to explain to an unsophisticated, math-challenged person just what the worksheet does, is near impossible.

BMK

[BOB W]

Thanks for the kind words for my royal screwup.

[Koss]

And by the way...

In my last post, I certainly did not mean to imply that YOU, or anyone else on this board, is "unsophisticated or math-challenged." LOL

I was referring, of course, to clients, and others, who might want to understand how the government taxes social security benefits. And I'm admitting that I can't really explain the formula. I can do the worksheet. But if I client asks me to explain how the worksheet works, I end up saying something like, "well, first they take your AGI, and add half of your social security benefits, and then they take that number, and depending on your filing status, they compare it with some other number, and subtract the number of chickens that fit in a 55 gallon-drum. The difference is then multiplied by a certain percentage, that is calculated by comparing the population of Alaska with the population of Dallas. And that determines how much of your benefits are taxable."

I can't really explain, in plain English, how this crazy thing works.

BMK