Taxes and final accounting

Where taxes fit in the timeline

Tax obligations show up at different points throughout settlement, not all at once. Your loved one’s final income tax return is due by April 15 of the year following their death. Then, if the estate generates its own income, a separate filing may be required for the estate itself. The formal accounting comes last, once debts are settled and you're preparing for distribution. Each step has its own timing and each one gates what comes next.

Your loved one's final income tax return

The most immediate obligation is filing your loved one's final federal income tax return, covering income earned from January 1 through the date of death. If you’re not ready to file by April 15 of the following year, you can request an extension to October 15—just as you would for your personal tax return. However, an extension to file is not an extension to pay. If taxes are owed, they're still due by April 15. Filing late without paying what's owed will result in interest and penalties.

In some cases, a return may not be required at all. The IRS sets minimum income thresholds and if your loved one's income for the year fell below the applicable threshold, a federal return typically isn't required. Even so, it may be worth filing anyway: if taxes were withheld from wages or retirement distributions, filing is the only way to recover a refund, and that refund belongs to the estate.

State returns follow similar logic, though thresholds and deadlines vary. A CPA who handles estate returns is worth the cost here.

The estate's own tax return

While the estate is open, it can earn money through interest on accounts, dividends, and rental income. That income is taxable, and it's reported separately from your loved one's final return on Form 1041, the federal income tax return for estates and trusts. If the estate earns less than $600 in a tax year, no filing is required. Most active estates exceed that threshold fairly quickly.

When estate tax applies

Estate tax is a separate matter entirely—and an easy one to confuse with the estate's income tax return. Where Form 1041 taxes income the estate earns while it's open, estate tax is a one-time tax on the total value of what your loved one owned at death. It applies only to very large estates. If the total value of the estate falls below the threshold set by the IRS, no federal estate tax is owed. Most estates fall well under that threshold. For context, the 2025 filing threshold was $13.9 million.

Some states have their own estate or inheritance taxes with lower thresholds, sometimes as low as $1 million, so where your loved one lived matters. If there's any question about whether estate taxes apply, confirm it before making distributions.

Tracking expenses

Your job includes maintaining a running ledger of all estate activity: every payment made, every debt resolved, and every expense incurred. This record becomes the foundation of your formal accounting to the court or beneficiaries.

Deductible expenses generally include:

• executor fees
• attorney and accounting fees
• court costs
• appraisal costs
• expenses related to managing or selling estate assets

Executor compensation

Executors are legally entitled to reasonable pay for their work. Some states set a fee schedule; others defer to what a court would consider fair. Either way, executor compensation is taxable income to you. If you're also a beneficiary and considering waiving the fee, talk to an advisor first: there are tax implications either way.

Formal accounting before distribution

Before assets can be distributed, you need to present a formal accounting to the court: a line-item record of everything that came in, every debt paid, every expense incurred, and what remains. Depending on your state, this goes to the probate court for approval, to beneficiaries directly, or both. Beneficiaries have a legal right to this accounting, and courts take it seriously.

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