I don’t know a single person who delights in preparing their tax return. As a widow, filing your spouse/partner’s final tax return adds another layer of gloominess to the chore. And yet dealing with the tax returns of a deceased spouse is an unavoidable task every widow faces.
Filing your spouse’s final taxes is definitely something you don’t want to do on your own. Even if you’ve been the person in the relationship who managed this job each year, I guarantee this is one time you should get assistance.
As you go through this process, I also hope you have a capable executor or a financial buddy helping you. Even if you do, I still recommend using the services of a tax professional to help you file all the necessary returns to complete the estate settlement.
Yes, I said returns. In almost all cases, there will be more than one tax return filed.
Here’s why:
For someone who passed away in early in the year, it’s possible that their prior year’s taxes have not been filed yet.
In Canada, if a person dies between January 1st and October 31st, the return and any balance owing is due at the normal April 30th deadline the following year. If a person passes away in November or December, the deadline is 6 months from the date of death. NOTE: tax deadlines vary depending on the country you live in. Please familiarize yourself with those deadlines*.
“Taxable events” such as receiving salary, wages, or bonuses still owed to your spouse, interest and other investment income earned, and proceeds from the sale of assets, etc can occur for some time after a person’s death and may cross over a calendar year. For complex estates, this can take several years.
If your spouse ran their own business, a business tax return will also have to be completed. Due dates for business returns will depend on the fiscal year used by the business. If the business will be closed following the death of your spouse, the business will also have to file a final return.
So in simple cases you’re probably looking at filing two returns. In more complex situations, there may be a number of tax returns involved, various deadlines, and some back and forth with the tax department before everything is complete.
This is why I recommend hiring a tax professional. Even if you have filed your own tax return in the past, even if your executor or financial buddy is tax savvy, getting a tax professional in your corner will take a HUGE burden off of you and your executor’s shoulders. At the very least doing so should save you time and it may even save you money by preventing costly errors.
You may be wondering why I’m writing about taxes when it’s only November. If you only think about your taxes during the weeks leading up to your tax deadline, you may be missing out on ways to lower your overall tax bill. This applies to everyone, not just those dealing with an estate settlement.
Here are potential tax saving steps to take before the end of any given year:
Take advantage of any allowable tax deductions you can get by topping up tax favourable retirement plans or making additional charitable donations.
Lock in capital gains or losses in investment accounts before year end to offset previous gains or losses.
Defer potential capital gains until the new year if you know you will be taxed at a lower rate by doing so.
Pay in advance any tax deductible expenses such as tuition and childcare costs, accounting and legal fees, investment management fees and potentially others.
If your spouse owned a business, make sure all deductible business expenses are paid out before year end (or fiscal year end).
Depending on the country you live in*, there may be other tax issues worthy of discussion with an accountant before year end.
Making a call or setting up an appointment with your tax expert in November or very early December will give you time to act on any recommendations well before the year end. Accountants that I know are happy to advise clients on what they can do to mitigate their tax exposure. Take advantage of their advice.
If the accountant provides you with recommendations to implement, act on them as soon as possible. You don’t want to be making rushed decisions in the final days of December.
I once had a client ask me to wire funds to a university foundation on December 24th in order to squeeze in a charitable donation before the end of the year. Not only was it difficult to act on due to my firm’s own holiday schedule, but the university in question was closed for the season and wouldn’t be open until the first week of January. It was very hard to find someone to provide the details for the wire instructions and acknowledge receipt of the funds before December 31st. We barely got the transaction complete, and not without a fair amount of stress for all parties involved.
You don’t need any more stress in your life. Implement any year end tax advice your accountant provides prior to the mid part of December if at all possible. Doing some preparation now will make filing the final tax return a bit easier later on.
* Important Disclaimer: Tax laws vary depending on what country you live in. Within countries, individual states or provinces can have important tax differences too. This post is for informational purposes only and is general in nature. For specific tax information, please consult a licensed tax professional familiar with the relevant tax laws in the jurisdiction pertaining to you.
Photo credit: Estée Janssens on Unsplash
