“Do I Have to File Taxes?”

Around this time of year, many Elder Law of East Tennessee (ELET) clients call our office with questions about filing taxes.  To be clear from the beginning, a disclaimer:  While ELET does assist clients with many legal issues which relate to their finances, ELET is not a tax law firm, and we do not employ financial advisors or accountants.  If you have questions related to your taxes or other financial issues, we recommend that you speak with a qualified financial advisor or tax professional.

That said, here is some basic information about filing made available through the IRS and SSA which may help to answer your questions and get you started on the right path:

General Filing Rules

If your filing status is… AND at the end of 2015 you were…* THEN file a return if your gross income was at least…**
Single Under 65 $10,300
65 or older $11,850
Head of household Under 65 $13,250
65 or older $14,800
Married, filing jointly*** Under 65 (both spouses) $20,600
65 or older (one spouse) $21,850
65 or older (both spouses) $23,100
Married, filing separately Any age $4,000
Qualifying widow(er) with dependent child Under 65 $16,600
65 or older $17,850

* If you were born before January 2, 1951, for social security purposes you are considered to be 65 or older at the end of 2015.

** Gross income means all income received in the form of money, goods, property, and services that is not exempt from tax.  This includes income from sources outside the US or from the sale of your primary residence (even if you can exclude part or all of it).  Gross income does NOT include social security benefits unless

(a) you are married filing a separate return and you lived with your spouse at any time during 2015, or

(b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly).

If (a) or (b) applies, use the Form 1040 instructions to calculate the taxable part of social security benefits to include in your gross income.

Gross income also includes gains, but not losses, reported on Form 8949 or Schedule D.  You may not reduce your income by any losses from business means reported on Schedule C or F.

*** If you did not live with your spouse at the end of 2015 (or on the date your spouse died) and your gross income was at least $4,000, you must file a return regardless of your age.

Filing Rules for Dependents

If you are… AND you are… THEN you must file a return if in 2015…
Single Under age 65 and not blind Your unearned income was more than $1,050.
Your earned income was more than $6,300.

Your gross income was more than the larger of

(a) $1,050 or

(b) your earned income (up to $5,950) plus $350.

Over age 65 or blind Your unearned income was more than $2,600 ($4,150 if both blind AND age 65 or older).
Your earned income was more than $7,850 ($9,400 if both blind AND age 65 or older).

Your gross income was more than the larger of

(a) $2,600 ($4,150 if both blind AND age 65 or older), or

(b) your earned income (up to $5,950) plus $1,900 ($3,450 if both blind AND age 65 or older).

Married Under age 65 and not blind Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.
Your unearned income was more than $1,050.
Your earned income was more than $6,300.

Your gross income was more than the larger of

(a) $1,050 or

(b) your earned income (up to $5,950) plus $350.

Over age 65 or blind Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.
Your unearned income was more than $2,300 ($3,550 if both blind AND age 65 or older).
Your earned income was more than $7,550 ($8,800 if both blind AND age 65 or older).
Your gross income was more than the larger of

(a) $2,300 ($3,550 if both blind AND age 65 or older), or

(b) your earned income (up to $5,950) plus $1,600 ($2,850 if both blind AND age 65 or older).

Filing Rules After Someone Dies

When someone passes away, there are up to four types of taxes which may have to be filed.  These are federal income tax, federal estate tax, Tennessee Hall tax, and Tennessee inheritance tax.

Federal Income Tax

Federal income tax may be owed for the income earned by the person before he or she passed away during the calendar year up to the date of death.  The tax return is prepared as usual, but “deceased” should be written at the top of the return before filing.

Federal income tax also may be owed on the decedent’s estate if the estate generated more than $600 during the calendar year following the date of death.  It also may be prudent to file a federal income tax return when major transactions involving estate property have occurred during the year, such as selling real estate.  The personal representative of the estate should consult an accountant or CPA for assistance completing the 1041 federal estate income tax return or for help determining whether the gross income of the estate is sufficient to merit filing.

Federal Estate Tax

Depending on the size of the estate, federal estate tax may be owed.  If the value of a decedent’s estate, before any deductions or claims against it, exceeds $5.25 million in 2013, $5.34 million in 2014, $5.43 million in 2015, or $5.45 million in 2016, a U.S. Estate Tax Return (Form 706) must be filed.  The personal representative of the estate is responsible for filing this return, which generally is due nine months after the date of death.

Tennessee Hall Tax

Tennessee Hall tax is a tax on interest from bonds and notes and dividends from stock.  This tax may be owed on a decedent’s estate if the estate earns more than $1,250 on interest or dividends prior to being distributed to beneficiaries.

Tennessee State Inheritance Tax

The Tennessee inheritance tax has phased out entirely in 2016, meaning that for anyone who passes away in 2016 or thereafter, it will not be necessary to file a state inheritance tax return.  However, for the estate of someone who passed away before 2016, it may be necessary to file the state inheritance tax return.  Most estates are eligible to file a Short Form TN Inheritance Tax Return (INH 302) as long as the gross value of the estate (before any deductions or claims against it) does not exceed the Tennessee Inheritance Tax annual exemption level ($1.25 million in 2013, $2 million in 2014, or $5 million in 2015).  If the gross value of the estate exceeds the relevant exemption level, the personal representative of the estate must file a Long Form TN Inheritance Tax Return (INH 301).  The return is due nine months after the date of death, and taxes must be paid within that period unless an extension has been granted.  The fact that a return is due does not necessarily mean there will be any tax owed.  A waiver may be requested from a Probate Court for gross estates under a certain amount, pursuant to T.C.A. Section 67-8-409 ($100,000 in 2013 or prior, $1,000,000 in 2014, or $2,000,000 in 2015), but it’s often simpler to file the return regardless.  You cannot close a probate administration without filing a Receipt or Nontaxable Certificate with the Court that is received from the Department of Revenue.

Conclusion

Filing taxes can be a complicated process, especially if you are acting as a fiduciary and filing on behalf of someone else.  Trusts and probate situations can add additional complexity to a tax situation.  If you are unsure about whether or not to file or have questions about completing tax forms, we recommend that you seek help from a qualified financial or tax advisor.  Getting sound advice from someone who is reliably knowledgeable about the ins and outs of tax laws may provide peace of mind and save you time and money in the long run.