Funeral and burial costs are not cheap. Each year, taxpayers ask “Can I deduct funeral expenses?”, and the answer, unfortunately, is usually not as an individual. The IRS states that no individual taxpayer can deduct for death-related expenses, but that doesn’t exclude estates from being able to.
If death-related expenses are paid specifically by the estate of the deceased, then the estate can claim deductions for certain costs. Even then, the total value of the estate has to be above a certain amount to be required to pay the estate tax. That value in 2018 was $11.18M.
Because of this, the deceased must have an estate worth over $11M for the expenses to be deducted.
What expenses are deductible?
Any expenses directly related to the burial and memorial service can be deducted as long as they are directly and reasonably related to the homegoing ceremony. For example:
- Body preparation services including embalming or cremation
- Administrative costs like hiring a funeral director
- Internment of the body in a casket or cremation urn
- Police escort
- Decorative and ceremonial touches like floral arrangements, catering services or musical accompaniment
How to file funeral deductions for estates
Executors of estates with values above $11.18M must file IRS form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Even executors of estates below this value sometimes file form 706 in order to lock in the fair market value of assets within the estate. This comes in handy when settling the details of transferring the estate to a spouse, or non-spouse beneficiary.
In order to deduct funeral expenses, filers should fill out Schedule J which is attached to IRS form 706.
What about state taxes?
Certain states require estate taxes, even in scenarios when they are exempt from the federal estate tax. These states often have exemption levels much lower than the federal ones so it’s possible, even probable in these states, that IRS form 706 is required to be filed with the state but not the federal government. These states include:
- District of Columbia
- Illinois (for 2009 and prior years and 2011 and future years)
- Kansas (for 2009 and prior years)
- New York
End of life estate planning
Most American taxpayers don’t have estates that qualify for these deductions. Many don’t have estates at all. In fact, only two out of every 1,000 estates were required to pay the estate tax in 2017, according to the Center on Budget and Policy Priorities. This means that each year, more and more people assume the financial burden of their loved one’s passing without any tax relief.
While there are several tax benefits to setting up estates, it also serves as an insurance policy that surviving loved ones won’t be left with the responsibility of death-related expenses.
Chances are that if you helped pay death-related expenses for a loved one, you’ve asked yourself “Are funeral expenses tax deductible?” but, unfortunately, you won’t be able to deduct those on your individual tax return. If you’re an executor of a recently-deceased person’s estate, you may be able to write off many of those costs, but only if the total value of the estate equals or exceeds $11.18M. Either way, TaxSlayer has agents available to speak with you and help you understand everything that you can deduct in order to maximize your returns this tax season.