Tax Implications when a Spouse Dies

Sorting through the legal paperwork and tax implications when a spouse dies can be overwhelming. Your emotions are already rolling so avoiding added stress and frustration is extremely important. There are many tax issues so knowing what your options are can be very helpful.

FILING STATUS:  You can continue to file your taxes under the category of "married filing jointly" for one year - two years if you have dependent children. This can be extremely helpful since single filers tend to reach higher tax brackets sooner.
For example, single filers fall into the 28 percent tax bracket as soon as they hit and income of $90,750 but couples don't hit that bracket until they earn $151,200. It is worth noting that you must have been legally married at the time of death and not have remarried prior to the end of the year.

RETIREMENT ACCOUNTS: If you are named the beneficiary of your spouse's traditional IRA, Roth IRA or other qualified retirement plan, you can keep the plan in your spouse's name and begin minimum required distributions when your spouse would have reached at 701/2. Another option is to exercise a spousal rollover that retitles the account in your name. Note that  your age at the time of retitling can have implications if you are younger and withdraw funds too early.

HOME OWNERSHIP: Quite often the surviving spouse will decide to sell the home that was jointly owned. If you go this route, you can take up to a $500,000 tax-free exclusion on the sale of the home if that sale occurs within two years of your spouse's death.

Filing a return for your spouse can be very taxing emotionally and the responsibility of filing the final return usually falls to the executor of the estate or a survivor. The return is filed on the same form that would have been used if the taxpayer were still alive, but "deceased" is written after the taxpayer's name. The filing deadline is April 15 of the year following the taxpayer's death.

For more complete advice, it is best to check with your legal advisor or with a CPA, such as PK Tax Services, so that mistakes are not made.