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Plan Well, Retire Well

Saving and investing your money
April 15

Losing a Loved One: 1099s and Interest on Savings Bonds

It's been a year since Kathy Sweedler and I started our series of posts about losing someone close to us. For my final post on this subject, I guess it's appropriate that taxes get the last word.

My father died toward the end of January of last year. He hadn't filed his taxes yet for 2012, so my sister and I had to filed them before the April 15 deadline. But this year, we had to do both his final, personal tax return for 2013 and one for the estate. In the process, I've learned some new things since I wrote about this topic last summer.

There was some good news: even though my father was only alive for one month of 2013, he got the full exemption and standard deduction for the year. Since he had only one month's income to report, that meant that we had some "unused" deductions.

He owned some EE savings bonds that named either my sister or me as beneficiaries. Savings bond holders have two options about how to report the interest: they can report it annually or wait until they cash the bonds and report it all then. Daddy had not been reporting the interest. But at his death, we had a choice: to report all the interest up until the date of death on his final tax return, or wait until we each cashed our bonds and report it on our own tax returns (See IRS Publication 550, page 9). The choice was obvious: put the interest on Daddy's last tax return and use up the rest of his exemption and standard deduction.

The challenge for my sister and me will be to remember that we did that! We're supposed to report just the additional interest when we eventually cash the bonds. But if we forget, we'll be paying tax twice on the interest we declare on Daddy's return.

The other issue has to do with the 1099s that Daddy received. I started reading about what income should go on Daddy's final return and what should go on the estate income tax return. It should be based on the date of death: anything he received before that date should go on his return. Anything that was received after should be reported by the estate.

But here's the problem: none of the people who sent 1099s bothered to split it up. They just sent the 1099s in my father's name.

For interest and dividend income, IRS Publication 559 (see page 5) describes two ways to handle it: either ask the provider of for a new 1099 "that properly identifies the recipient." Or, write in the amount that should not have been included as a Nominee Distribution and subtract it on Schedule B.

We got corrected 1099s from the bank, splitting up the interest that was earned before his death and after. But for the other 1099 that's wrong, I can't get a live person and I'm not getting a call back from the messages I've left. If I don't get them in time to finish the returns before April 15, I guess I'll have to go the Nominee Distribution route.

The estate will probably be closed in the next couple of months, so theoretically we would be filing one more tax return next year. Estates with at least $600 of income are required to file a return, but we'll be far short of that for 2014. So doing taxes this year may be one of the last services that I perform for my father. It's not fun, but it's the least you can do when you lose a loved one.

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