Christian Posted April 13, 2023 Report Share Posted April 13, 2023 An individual came in who has used one of the large franchise tax preparers for a long time. Her late husband cashed out a large balance from his 401K placing the cash in a savings account. He had taxes withheld as it turns out clearly not enough. He died unexpectedly in January of this year. An attorney who is assisting his wife settle his estate (he died intestate) advised that since a large state and federal tax were due on the distribution she could file as married filing separate and since he was no longer here to pay the tax she could not be held liable for them. Her preparer at the local franchise advised that this was not correct and prepared her return as married filing jointly with her liable for the unpaid tax on her husband's distribution. I backed away from this one as frankly I do not know the answer. What do y'all think ? Quote Link to comment Share on other sites More sharing options...
BTS Posted April 13, 2023 Report Share Posted April 13, 2023 She has the right to file MFS. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted April 13, 2023 Report Share Posted April 13, 2023 This is true but she cannot change to MFJ after the due date of the return. For 2022, it isn't too late. Yet. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 13, 2023 Report Share Posted April 13, 2023 I don't think that strategy will work if she ended up with the funds at the end of the probate. I can't remember specifically now, but I thought I read a case similar to this one where the spouse could not be relieved of the tax burden because she had the benefit of the funds in the marriage unit. Kinda like substance over form doctrine. Tom Longview, TX 2 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted April 13, 2023 Report Share Posted April 13, 2023 Interesting case. But it seems to me his MFS would still be liable for the tax owed and not her. So she would end up with less than the full amount anyway. Quote Link to comment Share on other sites More sharing options...
mcbreck Posted April 13, 2023 Report Share Posted April 13, 2023 If they have no other assets, I could see MFS being a good route to take. Otherwise I think the debt is going to have to be paid from assets of the estate. 2 Quote Link to comment Share on other sites More sharing options...
Christian Posted April 13, 2023 Author Report Share Posted April 13, 2023 There is a follow on to this in that he died this year she intends on filing mfj for 2023 which would perhaps create a problem as well. Quote Link to comment Share on other sites More sharing options...
kathyc2 Posted April 13, 2023 Report Share Posted April 13, 2023 How is the saving account he parked the money in titled? If with rights to survivorship, I believe it passes to her regardless of not having a will. If the income between the 2 was significantly different, MFS will more than likely produce higher overall tax, especially if one or both receive SS. 1 Quote Link to comment Share on other sites More sharing options...
kathyc2 Posted April 13, 2023 Report Share Posted April 13, 2023 3 hours ago, Margaret CPA in OH said: This is true but she cannot change to MFJ after the due date of the return. For 2022, it isn't too late. Yet. You can change from MFS to MFJ any time under normal amendment timeframe. Changing from MFJ to MFS has to be done before due date. 1 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted April 14, 2023 Report Share Posted April 14, 2023 3 hours ago, kathyc2 said: Changing from MFJ to MFS has to be done before due date. What I said in slightly different words. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted April 14, 2023 Report Share Posted April 14, 2023 In Wisconsin, it would be community property. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 14, 2023 Report Share Posted April 14, 2023 19 minutes ago, mcb39 said: In Wisconsin, it would be community property. I thought about that too, but VA is NOT a CP state. There may be some nuance to this, but I still think if she ended up with the cash, she is going to have to pay the bill, and like @cbslee said it will either be her personally or his estate that is on the hook for it. Tom Longview, TX 1 Quote Link to comment Share on other sites More sharing options...
Christian Posted April 14, 2023 Author Report Share Posted April 14, 2023 I have to agree. He died leaving an estate which will require the listing of those assets and creates the liability of his estate to pay his debts. He placed the funds in a savings account titled in his name so guess who they will sue if the estate does not pony up. His wife the appointed executrix. 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted April 14, 2023 Report Share Posted April 14, 2023 16 minutes ago, Christian said: I have to agree. He died leaving an estate which will require the listing of those assets and creates the liability of his estate to pay his debts. He placed the funds in a savings account titled in his name so guess who they will sue if the estate does not pony up. His wife the appointed executrix. Bingo 2 Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted April 14, 2023 Report Share Posted April 14, 2023 2 hours ago, Christian said: His wife the appointed executrix. She has a duty to file the final tax return and pay the taxes for the decedent; whether she files jointly or separately. 3 Quote Link to comment Share on other sites More sharing options...
mcbreck Posted April 14, 2023 Report Share Posted April 14, 2023 If the deceased has kids of his own who get a substantial portion of his estate, the wife could MFS and then the beneficiaries share the tax bill. If they file MFJ it is all hers. Just an idea. Quote Link to comment Share on other sites More sharing options...
Lee B Posted April 14, 2023 Report Share Posted April 14, 2023 Wouldn't the beneficiaries share after the taxes and other debts get paid anyway. Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted April 14, 2023 Report Share Posted April 14, 2023 2 minutes ago, mcbreck said: Just an idea. They need sound legal advice; as well as tax advice. 1 1 Quote Link to comment Share on other sites More sharing options...
Christian Posted April 16, 2023 Author Report Share Posted April 16, 2023 Well the sound tax advice came from none OTHER than an ATTORNEY who is assisting in closing the estate. Quote Link to comment Share on other sites More sharing options...
Lee B Posted April 17, 2023 Report Share Posted April 17, 2023 Most Law Schools only require 1 semester of tax law in order to graduate. Quote Link to comment Share on other sites More sharing options...
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