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Tax -- Part IV

As with estate planning, there are important, and often complicated, tax issues that need to be handled in the wake of the death of a spouse. In this section we will look at:

HerTip: Keep in mind that the tax rules and regulations can be very complicated – a trusted tax advisor can provide invaluable guidance through the maze. For information beyond what we cover here, please visit our tax planning center.

Estate Taxes
Within nine months, you are required to file an estate tax return for income earned on your spouse's estate after their death. Your spouse's estate will not be subject to estate taxes if its net worth is less than $675,000. That threshold will increase each year until it reaches $1 million in 2006. Taxes, which can be as high as 55 percent, must be paid on any amount above the maximum.

The Unlimited Marital Deduction
Under the unlimited marital deduction, you can avoid estate tax if your husband has left everything to you in his will and you are a U.S. citizen.

Filing Your Return
You must file a final federal and state income tax return for your spouse on income earned that year up to the time of death. As with your return, this is due by April 15th. You can file a joint return if that is what you have always done as long as you do not remarry prior to April 15th.

You must indicate in writing that you are filing as a surviving spouse. Do so on the line on which you sign the return. The following year you may file as a single taxpayer. Lastly, you may file as qualifying widow if you meet the following conditions:

  • You were entitled to file jointly in the year your spouse died.
  • You did not remarry during the year.
  • You paid more than half the cost of keeping up your home.
  • Your home was the main home for the full year for a dependent child.

After two years of filing as a qualifying widow, you may file as head of household if you meet the requirements outlined below.

  • You are not married at the end of the year. (You can be considered unmarried if you are legally separated or if your spouse did not live with you for the last six months of the year.)
  • You paid more than half the cost of keeping up your home.
  • Your home was the main home for your child, a foster child or another dependent relative.
  • You are a citizen of the United States or resident for the entire year.

There are, however, exceptions to these conditions. For a complete explanation, refer to IRS Publication 501 (Exemptions, Deductions and Filing Information) or consult a tax attorney. The IRS website can be found at www.irs.gov.

Continue to: Widowhood V: Death Benefits

To open a brokerage account, click here for Women's Financial Network at Siebert, where Smart Women Invest.

In this course, we will cover the following:

Gathering Information
Estate Planning
Tax
Death Benefits
Budgeting and Credit Management
Investing
 

 

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