While plenty of individuals pay their funerals using their estate funds, some people don’t have large enough estates that could cover funeral costs. In cases like these, a relative or friend usually shoulder the costs. However, take note that the law only allows the deduction of funeral expenses from taxable income.
ITR or Individual Tax Returns
Based on the guidelines by the Internal Revenue Service or IRS, you can’t deduct funeral expenses on ITRs, and this includes the final ITR of the individual who passed away. While some taxpayers typically assume that they can include funeral costs as medical deductions on the final ITR of the decedent, the law only allows the deduction of medical expenses spent on preventing or treating an illness.
Estate Tax Returns
An executor can deduct funeral expenses if the IRS informs that the estate of the decedent must file an estate tax return. Take note that only estates valued at $5 million, gross, should file. The gross value is basically the overall value of all assets in the estate. If eligible for an estate tax return, the executor must file the return nine months from the death of the decedent.
You must utilize the Form 706 for filing the estate tax return, and deduct all funeral expenses in Schedule J, which you must then attach to the Form 706. The Section A in Schedule J must contain a clear, itemized list of all funeral expenses, along with the overall amount at the bottom. Do not include funeral expenses that the estate already received reimbursement for, regardless of the source, adds a funeral planning director in Layton.
Crucial Things to Consider
Aside from funeral expenses, an executor could likewise deduct the following:
- Value of the property passed to spouse of the decedent
- Value of the property passed to any charitable organization
- Overall tax amount paid to the state
- Debt that the decedent had at the time of his or her death from the estate’s taxable value
A specialist from Lindquist Mortuaries and Cemeteries notes that the executor must file income tax returns if the estate earns any income. However, the executor can’t deduct funeral expenses from these returns.