A diagnosis of dementia, a category of diseases affecting memory and thinking that includes Alzheimer’s disease,…
** This article has been revised from its original version which was published on July 16, 2015
The fiduciary of an estate may use either the calendar year or the fiscal year as the “taxable year.”
Typically, most fiduciaries elect to use a fiscal year because it gives them more time to think about estate taxes during estate administration. A calendar year ends on December 31st, whereas the fiscal year begins on the day of the individual’s death and ends on the last day of the month before the one-year death anniversary. For example, if the decedent died on any day in March of 2022, their estate’s fiscal year would end on February 28th, 2023.
Any assets acquired by the estate during the fiscal year must be reported on a fiduciary income tax return. The personal representative or administrator of an estate should also make any estate distributions during that time.
An Example of How the Fiscal and Calendar Years Matter
Tom passed away on June 15, 2022. Tom’s rental properties, savings account, and stock will generate revenue for the estate. The personal representative of his estate will file a fiduciary income tax return at the end of his estate’s fiscal year, which is May 31, 2023.
Suppose Tom had beneficiaries of his estate, and distributions were made to them during that fiscal year. In that case, the income normally subject to estate taxes gets transferred to the beneficiaries instead. The assets and certain other expenses which occur during that time can be subtracted from the estate income.
A fiduciary should claim actual cash amounts on their tax return, not accrued funds. If a stock dividend is recorded on December 31, 2022, and the issuance date was January 3, that dividend would not be taxable in the year 2022; it would be taxable in 2023.
Talk to an Estate Planning Attorney
It is vital that a personal representative or administrator of an estate have a firm understanding of whether it makes sense to settle an estate in a custom fiscal year or the standard calendar year. Before deciding, they should talk to an accountant or estate planning attorney about the different tax ramifications. If the personal representative is able to wait several months to pay an expense to offset income that is projected for the following year, then it makes sense.
Note: Fiscal year elections are only available to estates. Trusts are generally required to be filed according to the calendar year.
Benefit from our estate administration experience, as well as caring and compassionate staff. Consult with the experienced estate planning lawyers at Russo Law Group, P.C., to discuss tax consequences using a fiscal or calendar year. We can help you make the best decisions to reduce your tax burden. Contact us or take advantage of our free seminars and webinars to learn more about how Russo Law Group, P.C., may assist you with estate administration.
Eric J. Einhart
Vincent J. Russo & Associates, P.C.
1600 Stewart Avenue, Suite 300
Westbury, NY 11590