If you have paid for a loved one’s burial you may need to know, ‘Are funeral expenses tax deductible?’ These costs can be deducted from your tax liability but you must know the appropriate way to file for this deduction. There appears to be a lot of misunderstanding about where the funeral deductions should be placed on the Internal Revenue Service (IRS) forms. You must file the deduction legitimately in order to receive the credit. It is important to keep all the receipts associated with the final expense payments when you plan on taking the IRS deduction. Let’s look at some of the incorrect places this deduction is listed, then we will discuss the right way to file.
If you read the list of allowable deductions on IRS Form 1040, Schedule A, you will notice a category called miscellaneous expenses deduction. This is the area where you will include job-seeking expenses and tax-preparation fees. The guidelines for this section do not include an allowance for funeral expenses. Also, you will not add funeral expenses to those paid for medical expenses of the deceased. The medical expenses can include any money paid by the filer for the prevention, diagnosis, or treatment of disease, according to the IRS guidelines. Only those medical expenses that were not paid for by insurance, state or federal aid, and that exceed 7.5% of adjusted gross income can be included for this deduction.
The appropriate place to put funeral expenses is with the estate tax deduction. The IRS states that an estate will owe taxes to the federal government if the assets value is greater than $3.5 million. Allowable deductions can be taken from the estate total before calculating the value limit of the IRS code. These figures can change often, so you should check with an estate planner or income tax preparer to determine your specific liability. When leaving the entire estate to a spouse the IRS will not require tax payment on the assets. When the estate is left to children, then the IRS requires a tax payment.
Some of the allowable deductions subtracted from the value of the estate are those for funeral costs. The cost of a funeral is between $3,000 and $10,000 for the average person. The costs can escalate several times higher when paying for specialized funeral services. All these expenses can be deducted from the total value of the estate and the asset values will be lowered. The cost of the casket, the expenses of the fatal illness, and outstanding bills can be subtracted. The cost of hospitalization, physician bills, and nursing home care can be subtracted. If there are administrative costs associated with the estate, outstanding bills like credit cards, and there are attorney fees or court costs these can all be deducted. This will cause the tax assessed by the IRS to be reduced. When you follow the IRS guidelines and you file the appropriate form you will find the answer to ‘Are funeral expenses tax deductible?’ answered in the affirmative.