Filing a Final Tax Return

What Is a Final Return?

When someone dies, they still owe a tax return for the year they passed away. It's called the "final return," and it covers income earned from January 1 through the date of death. It's filed on a regular Form 1040 — the same form everyone uses — with a few special notations.

Think of it this way: if someone passed away on September 15, their final return covers nine and a half months of income — wages, Social Security, investment income, rental income, and everything else they earned during that period. After the date of death, any income earned by the estate's assets belongs to the estate and is reported on a different return (more on that below).

If the deceased hadn't filed the prior year's return yet, you'll need to file that one too. For example, if someone died in March 2024, you may need to file both their 2023 return (due April 2024) and their final 2024 return (due April 2025).

Who Files It?

The surviving spouse can file a joint return for the year of death, which is usually the most tax-advantageous option. The joint return includes both spouses' income for the full year (the deceased's income through the date of death, and the surviving spouse's income for the full year).

If there's no surviving spouse, the executor or personal representativeis responsible for filing. This is one of the executor's legal duties — and it's one that catches many new executors off guard.

To file on behalf of the deceased, you'll need to attach Form 1310(Statement of Person Claiming Refund Due a Deceased Taxpayer) if a refund is owed. Write "DECEASED," the person's name, and the date of death across the top of the return.

What to Report

The final return includes all income the deceased received (or was entitled to receive) from January 1 through the date of death:

• Wages and salary — W-2 income through date of death. The employer should issue a W-2 for the shortened period.
• Social Security benefits — Only benefits received before the month of death are included. Benefits for the month of death must be returned to the SSA.
• Investment income — Dividends, interest, and capital gains realized before death.
• Retirement distributions — Any IRA or 401(k) distributions taken before death.
• Rental income — Rent received through the date of death.
• Business income — If the deceased was self-employed, business income through date of death.

Medical expenses paid before death can be deducted on the final return if you itemize. This is often substantial if the deceased had a final illness. Medical expenses paid by the estate within one year of death can also be deducted on the final return (not the estate return) by making an election.

Deadlines

The final return follows the normal tax filing deadline — April 15 of the year following death. If someone died in 2024, their final return is due April 15, 2025.

You can request a 6-month extension by filing Form 4868, giving you until October 15. This extends the time to file, not the time to pay. If you expect the estate to owe taxes, you should estimate and pay by April 15 to avoid interest and penalties.

If you need to file a prior year's return as well, that return was already due and may be late. File it as soon as possible — the IRS is generally understanding about delays caused by death, but interest still accrues.

Estate Income Tax (Form 1041)

This is the return that really surprises people. After someone dies, their estate becomes its own tax entity. Any income earned by estate assets after the date of death is reported on Form 1041, the estate income tax return.

What counts as estate income:

• Interest earned on bank accounts after date of death
• Dividends paid after date of death
• Rental income received after date of death
• Capital gains from selling estate assets
• Business income earned after death

The estate gets its own tax brackets, and they're compressed — the estate hits the highest tax rate (37%) at just $14,450 in income (2024), compared to $609,350 for individuals. This means it's often more tax-efficient to distribute income to beneficiaries rather than accumulating it in the estate, since beneficiaries typically have more favorable brackets.

Form 1041 is due on April 15 of the year following any year in which the estate earned more than $600 in gross income. If the estate wraps up within a single tax year, you may only need to file one 1041. If settlement takes longer, you'll file one for each year the estate is open.

Common Mistakes

Here are the errors we see executors make most often with tax filings:

1. Not filing a final return at all. Many families don't realize a return is needed. The IRS will eventually notice and send a letter — with penalties attached.
2. Missing the Form 1041 requirement. If the estate earns more than $600 in income while it's being settled, you need to file. Bank interest alone can trigger this.
3. Forgetting to elect portability. If there's a surviving spouse, the estate tax return (Form 706) should be filed to preserve the deceased spouse's unused estate tax exemption — even if no estate tax is owed.
4. Reporting income on the wrong return. Income earned before death goes on the final 1040. Income earned after death goes on the 1041. Mixing these up creates problems.
5. Not deducting medical expenses. The deceased's medical expenses from the final illness can be significant and are often deductible on the final return.
6. Distributing assets before paying taxes. As executor, you can be personally liable if you distribute the estate and there aren't enough funds left to pay taxes.

How Settled Helps