New Income Tax Form Designed for Seniors

IRS Form 1040
The IRS has created a new Form 1040 for seniors.

There’s a new tax form designed with seniors in mind. The IRS released a draft form of the 1040-SR, “U.S. Tax Return for Seniors,” says Kiplinger in its article, “IRS Releases Draft Form of New 1040 Tailored for Seniors.”

This form was created by the 2018 Bipartisan Budget Act. One of its provisions required the development of a tax return that would be easy for seniors to use. The form will highlight retirement income streams and other tax benefits for seniors. Taxpayers age 65 and older can use this form to file their 2019 tax returns.

It’s designed off the regular 1040, and the IRS says it uses all the same schedules, instructions, and attachments. Taxpayers who use tax software to file may not even notice the difference.

However, for taxpayers who still complete paper tax forms, the new form will be friendlier to aging eyes. The font is bigger, and the shading on the regular 1040 has been removed to improve the contrast and increase legibility.

One important feature of the new tax form is the addition of a standard deduction chart. The form lists the standard deduction amounts, including the extra standard deduction amount for which taxpayers age 65 and older qualify. This way, seniors don’t have to search around for the information. The chart also makes it simpler for seniors to take advantage of the full standard deduction for which they’re eligible, especially for those who may not even be aware of the extra amount for which they qualify.

The tax form has lines for specific retirement income streams, like Social Security benefits, IRA distributions, and pensions, as well as earned income from work.

The draft form will be finalized later this year.

Reference: Kiplinger (July 12, 2019) “IRS Releases Draft Form of New 1040 Tailored for Seniors”

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Filing Estate Taxes for a Deceased Family Member

Filing personal and estate tax returns is one of the executors jobs.
Filing personal and estate tax returns is one of the executor’s most important jobs.

If you’re the executor (or personal representative) of a loved one’s estate, and they were well-off, you’ll be dealing with several tax issues. The article “How to file a loved one’s taxes after they’ve passed away” from Market Watch gives a general overview of the decedent’s potential tax liabilities.

Winding down the financial aspects of the estate is one of the tasks done by the executor. The executor is identified in the decedent’s Will or appointed by a judge. If the decedent had a revocable living trust or an irrevocable trust, the trust document names a trustee who works in conjunction with the executor.

The executor is responsible for filing the federal income tax returns for the decedent’s personal income (Form 1040) as well as for the income generated by the estate or trust (Form 1041). The estate’s first federal income tax year starts immediately after the date of death. The tax year-end date can be December 31 or the end of any other month that results in a first tax year of 12 months or less. The IRS form 1041 is used for estates and trusts and the estate income tax return is due on the 15th day of the fourth month after the tax year-end.

For example, if a person dies in 2019 and the executor chooses December 31 as the tax year-end, the estate tax return would be due April 15, 2020. An extension is available, but it’s only for five and a half months. In this example, the due date could be extended to September 30.

There’s no need to file a Form 1041 if all of the decedent’s income-producing assets are directly distributed to the spouse or other heirs and, thus, bypass probate. This is the case when property is owned as joint tenants with right of survivorship, as well as with IRAs and retirement plan accounts and life insurance proceeds with designated beneficiaries.

Unless the estate is valued at more than $11.4 million in 2019, no federal estate tax (also known as the “death tax”) will be due.

But the executor needs to find out if the decedent made any large gifts before death. That means gifts larger than $15,000 in 2018-2019 to a single person, $14,000 for gifts in 2013-2017; $13,000 in 2009-2012, $12,000 for 2006-2008; $11,000 for 2002-2005 and $10,000 for 2001 and earlier. If these gifts were made, the excess over the applicable threshold for the year of the gift must be added back to the estate to see if the federal estate tax exemption has been surpassed. Check with the estate attorney or tax professional to ensure that this is handled correctly.

The unlimited marital deduction permits any amount of assets to be passed to a spouse – as long as the decedent was married to a U.S. citizen. However, the surviving spouse will need expert estate planning to pass the family’s wealth to the next generation, without a large tax liability.

While the taxes and tax planning are more complex when significant assets and estate taxes are involved, estate planning is perhaps even more important for those with modest assets as there is a greater need to protect the family and less room for error. An estate planning attorney can strategically plan to protect family assets even when the assets are not so grand.

Reference: Market Watch (June 17, 2019) “How to file a loved one’s taxes after they’ve passed away”

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