The Two Tax Returns a Texas Executor Has to File

An executor in a Texas probate case usually spends the first months on letters testamentary, the inventory, and notice to creditors. Federal income tax tends to come later, and it often comes as a surprise, because the year of death produces two income tax returns rather than one. Texas has no state income tax, so both are federal, and both are the executor’s responsibility.

The first executor tax return in Texas is the decedent’s final Form 1040, covering income up to the date of death. The second is Form 1041, the estate’s own income tax return, for income the estate receives after death, such as interest, dividends, or rent. Federal law makes the executor responsible for both.

In an estate that cannot pay all of its debts, an executor who distributes assets before the federal tax is paid can end up personally liable for it. McCulloch & Miller, PLLC guides Houston executors through this part of probate alongside the court filings.

The Decedent’s Final Form 1040

Under 26 U.S.C. § 6012(b)(1), the return of a deceased individual is made by the executor, administrator, or other person charged with the decedent’s property. IRS Publication 559 adds that if no personal representative has been appointed and there is no surviving spouse, whoever is in charge of the decedent’s property files and signs as personal representative.

The final return is due when the decedent’s return would have been due had they lived, which for most people is April 15 of the year after death. It reports income as if the person were still alive, except that the tax year ends on the date of death. A surviving spouse can generally file a joint final return with the personal representative, though a joint return is not available if the survivor remarried before the end of the year of death.

The Estate’s Form 1041

An estate is a separate taxpayer from the person who died, and it comes into being at the death. A decedent’s estate must file Form 1041 for any tax year in which it has gross income of $600 or more, the threshold in § 6012(a)(3), or in which a beneficiary is a nonresident alien. Publication 559 draws the line simply. Income earned up to and including the date of death goes on the final Form 1040, and income received after the date of death goes on the estate’s Form 1041.

The executor chooses the estate’s tax year when filing the first Form 1041. It can be a calendar year or a fiscal year ending on the last day of any month, as long as the first year does not exceed 12 months. Once chosen, it generally cannot be changed without IRS approval. A calendar-year estate files by April 15. A fiscal-year estate files by the 15th day of the fourth month after its year ends.

An executor who is already collecting interest, dividends, or rent for the estate is often closer to the $600 line than expected. Call (713) 333-8900 and the firm will schedule a consultation to go through your plan.

Three IRS Forms Many Executors Never Hear About

Publication 559 describes several filings that protect the executor rather than collect tax:

• Form 56: notifies the IRS that the executor is acting in a fiduciary capacity for the estate, filed once the estate has an EIN.
• Form 4810: requests a prompt assessment, which shortens the IRS’s usual three-year window to 18 months from the date the IRS receives the request, for the decedent’s or the estate’s income tax returns.
• Form 5495: requests discharge from personal liability for the decedent’s income, gift, and estate taxes, filed after those returns are filed.

A federal estate tax return on Form 706 is a separate obligation that applies only to larger estates, and this post does not cover it.

When an Executor Becomes Personally Liable

Federal priority is the rule that, when an estate cannot pay all of its debts, debts owed to the United States are paid first. Under 31 U.S.C. § 3713(b), a representative who pays any part of an estate’s debts before paying a claim of the government is liable to the extent of that payment for the government’s unpaid claims.

Publication 559 explains when that liability attaches. The personal representative of an insolvent estate is personally responsible for the decedent’s or the estate’s tax in two situations. One is where the representative had notice of the tax obligation before distributing the estate’s assets. The other is where the representative failed to use due care in finding out whether one existed. In an estate that may be short on money, the order of payments therefore has to be settled before the first distribution check goes out. The firm has written separately about other sources of executor personal liability in Texas probate cases.

Questions Executors Ask About Estate Income Tax

Does a Texas Estate File a State Income Tax Return?

No. Texas has no state personal income tax, so the final return and the estate’s income tax return are both federal.

When Is the Decedent’s Final Return Due?

On the date it would have been due had the person lived, which is generally April 15 of the year after death for a calendar-year taxpayer.

Does Every Estate Have to File Form 1041?

No. A domestic estate files Form 1041 for a year in which it has gross income of $600 or more, or in which a beneficiary is a nonresident alien.

Lining Up the Returns With the Probate Timeline

The tax deadlines do not wait for the probate court, and the estate’s first fiscal-year choice is easiest to make early. David W. Miller’s finance background informs how McCulloch & Miller sequences these filings within the Texas probate process, from the first EIN to the last distribution. Call McCulloch & Miller at (713) 333-8900 or contact the firm’s Houston office to schedule a consultation.