Death and Taxes...

[MineralMan]

So, I've been putting this off, but today I have to finally begin working on my late parents' 2020 income tax filing. They both died on January 6 of 2021. They owned a citrus and avocado farm and a commercial rental property. They also had very costly 24/7 in-home medical care for the entire year.

They were both 96 years old. My father wasn't too bad, but my mother had advanced Alzheimer's. What I'm facing is the fact that my father had basically stopped taking care of financial record-keeping. After they died, my brother-in-law gathered up every piece of paper in the house, including bills, paid and unpaid, and everything else he could find.

My Dad didn't share much about financial information. I did an initial sort of the paperwork soon after their deaths, and am now going through it carefully to try to come up with numbers for their 1040. It's not all there. I know that. They won't owe any taxes, because their medical costs were astoundingly high and they had poor crops in 2020. The cost of irrigation and custom farming for their farm far exceeds the income from it. Basically, they were living by pulling money out of their considerable savings.

But, I have to do their taxes and file a 1040. I know what to do, and will get it done before the October 15 deadline. I filed an automatic extension earlier in the year.

I have their 2019 filing, and will rely on it to guide me as I try to document the income and expenses. But, I'm going to have to do some estimating. So, I'll be including a cover letter with the filing, explaining that, and including their death certificates and their 2019 tax forms.

Everything else connected with their estate is done. The farm had been sold before they died and I completed the sale as their executor and trustee of their estate.

The tax preparer they used in 2019 is dead, too. They didn't use an accountant. It's all up to me.

Bottom line is that they do not owe the IRS anything. I'm hoping my stab at their 1040 and the situation gets past an IRS review.

It Sucks! I don't want to be doing that this week.

[jimfields33]

1. Sorry to hear this.

Good news is if you make any errors, the irs will fix them and either give refund or a bill. I’ve found the IRS to be more helpful then in the 80’s.

[mnhtnbb]

4. My son, Executor of my late husband's estate,

waited 29 months for the IRS to issue a refund check of $3.23 on the final taxes filed in March 2019, which the NC Superior court required before authorizing the Executor to make final distributions of the Estate according to probate of the Will.

Of course, the orange a$$hole was still in charge during most of that time. Hopefully, the IRS will be more responsive now.

[Ocelot II]

2. You might want to hire an accountant.

That way you'll be saving yourself a lot of unpleasant work, as well as some insulation from IRS problems.

[MineralMan]

5. No need for that. They will owe nothing to the IRS.

Their health care costs and the cost of operating that farm more than wipe out any income they received.

I have enough records to document income and major expenses. In the end, it comes to zero owed. My father didn't pay any estimated taxes in 2020, so there's no refund. I found all of the important documents and am not going to detail every last farm expense...just the ones I have paperwork for. Just the irrigation costs and the costs from the custom farming outfit they had doing the work more than wipe out all revenues that came in.

There's nothing for the IRS in any of this. So, they will be uninterested in their taxes. They haven't owed anything for a few years, so their old filings will reflect this one. Today, I entered all of the numbers in a spreadsheet. It shouldn't take me more than an hour or two to use TurboTax to complete the forms. I had done a preliminary sort on the documentation earlier in the year, so today was just sorting it into categories and doing the spreadsheet.

Given the numbers, I don't need to detail every expense for the farm, and don't have the information to do that, anyhow, and there were no expenses for their rental property, so I'm not going to deal with that, either. I'll just list the rental income, which will, again, be wiped out by their overwhelming medical expenses. What is sad is that they hung onto that farm long after if had ceased to show any profit.

An accountant wouldn't have any more information than I had. When my parents died, the dining room table was stacked high with papers, some of them dating back four years. I just had my brother in law and my niece and nephew box up all the papers randomly and ship them to me. Then, I spent about a week sorting and categorizing them.

If the IRS has a problem with this, they can send me a demand for more than I have. But, there's no money there for them, no matter how much information is available, so they'll write it all off as done. They can easily compare 2020 to the last few years and see that the farm lost money every year.

It's a lot of work for nothing, really.

[PoindexterOglethorpe]

3. Oh, dear.

This sort of thing is exactly why I have shared much financial information with my son, and some stuff with my sister.

I agree that you ought to turn it over to an accountant.

[MineralMan]

6. Yes. Once my father was past 92 years of age,

he just stopped taking care of paperwork. He had an accountant, but she died of Covid, too.

There's really nothing an accountant could do, really, given the sloppy paperwork trail. Given the circumstances and my familiarity with tax preparation, I can handle this OK. I just don't want to. It's too much of a reminder of the sorry state my parents were in in their last years, and a reminder that I was unable to be there to help them handle the paperwork.

The only smart thing my Dad did was to set up a family trust before he deteriorated too much. The trust's attorney, who I've been working with in handling the estate and its distribution said to me, "Just do the taxes yourself. There's nothing there for the IRS. They won't bother you, as long as you file."

[PoindexterOglethorpe]

7. I am glad to know you can handle the paperwork.

I have not done my own taxes for years, even though they aren't all that complicated, and if you were to take a look at mine you'd probably horrified that I farm it out.

There was a time when my taxes were fairly complicated, and I definitely needed an accountant then. I just find it convenient and easy to continue.

Things like trusts (and you've mentioned this before) can really make things so much easier.

[X07Y39-Alpha]

8. I think you have a good plan

I had to do this for my father who passed last December for his 2020 taxes. From what I found his information changed very little from 2019. I used TurboTax. You will need to add form 1310 and a copy of the legal paperwork making you the estate executor. Also the taxes will need to be mailed (can's submit electronically). If my experience is normal, you will have a long wait for any refund. I submitted the taxes in February and they are still being "processed". Best of luck and sorry for your loss.