Taxes have always been the bane of many taxpayers’ existence, no matter how many years have passed since you’ve been meeting your dues. But what happens when you get into an untimely accident and leave this world? No one wants to think about their death, but it’s a fact of life that everyone has to prepare for at some point, especially to avoid dealing with problems long after you’re gone.
As you move forward, it’s important to think about your Estate Plan to protect your family from suffering financially on top of the emotional turmoil of losing a loved one. With that in mind, how can you handle your outstanding taxes and ensure you won’t leave your family with any debts?
Settling your outstanding taxes is one thing, but it’s the “how” you settle those debts that can affect your survivors in the long run. Since mortality is a fact of life, the best thing you can do is to make sure you’re prepared to settle your outstanding taxes in a manner that won’t affect your family.
What Happens if a Deceased Person Owes Taxes?
According to the IRS, what happens if a deceased person leaves behind unpaid taxes will depend on the circumstances such as the following:
- The value of the real estate and property (assets) owned by the person when they passed away;
- The amount of estate debt owed;
- Any liens placed on the property, and;
- Any unpaid gift tax owed;
Whether or not taxes are owed depends on whether the decedent properly took advantage of various tax deductions available before they passed away. For instance, if the decedent didn’t pay taxes before they passed away, they may have left behind some unpaid taxes and other debts that will need to be settled post-mortem.
The IRS does allow beneficiaries to pay the taxes owed before the estate is distributed. But if the executor of the estate was the one who owed the taxes, it’s the executor’s job to pay the taxes owed out of the estate’s assets. If there are no assets, the executor will be liable for these taxes.
How can Settling Decedent’s Taxes Impact a Beneficiary?
Before you settle a decedent’s taxes, it’s important to know how it may impact a beneficiary. In some cases, it’s in the best interest of the beneficiary to pay the taxes owed because it’ll mean more will be available to cover costs associated with the estate’s expense. For instance, if you’re the beneficiary of the estate and the estate owes $250,000 in taxes, the beneficiary will get $250,000 less in the final distribution.
On the other hand, paying the taxes owed can help a beneficiary avoid having to cover the debt with their own funds. This can also help a decedent’s beneficiaries avoid paying higher taxes down the road, especially if the estate has a significant amount of assets.
The Bottom Line: Handling Your Taxes in Your Estate Plan to Protect Your Family
While no one can stop death, there are some steps you can take to avoid taxes owing. For example, you can make sure that you’re taking advantage of tax deductions and credits before you pass away. Some of the most important deductions include those that fall under the lifetime gifts made to your spouse or other beneficiaries.
The IRS allows you to give up to $15,000 per year to your spouse and other beneficiaries without having to pay taxes on that amount. That’s $75,000 that your beneficiaries won’t have to pay taxes on. If you’re leaving a sizable estate behind, it’s a good idea to discuss your estate plans with a tax professional and your lawyer.
How Can We Help You?
Are you dealing with IRS tax problems? Not to worry—Axiom Tax Resolution Group is here to help. We are tax resolution services specialists that provide tax solutions to our clients. With our help, we get to create a roadmap and strategy that will help you resolve your tax woes.
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