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Client death

Level 3

I have a client who passed away last July but the vendor who issued her pension checks were not advised so she had all of her 2020 pension deposited into her bank account.  Her accountant is trying to work out how to pay that back but it will be in the current year 2021.  How do I handle filing her taxes if she received all of her payments in 2020 with taxes for both federal and state taken out but over five months of her 1099 will reflect payments after her passing?  Has anyone else dealt with this?

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6 Replies 6
Level 12

The payments and withholdings for the seven months she was alive go on her final 1040.  The five months of erroneous income go on the estate's 1041.  The estate can use a fiscal year, and should try to get the money paid back by June.  Add it in, then subtract it out.  Even if it's not paid back yet, you can use accrual method.  Attach explanations to both returns.  Don't expect quick processing.  

Level 3

Thank you; this is very helpful.

Level 3

But I guess that means I have to file her taxes by mailing them in rather than efile since I have to attach explanations?  My history with attaching explanations is that they do not get read.  Thanks again for your help.

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Level 15

Attach the explanation as a pdf and e-file the return.  They won't read the paper copy any more closely than they will with the e-filed copy.

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Level 3

Of course; I wasn't thinking!!!  Thank you, this helps tremendously.

Level 15

You betcha!

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