When taxpayers are searching for overlooked end-of-year tax deductions to include, they may wonder whether they qualify to deduct the cost of any funeral expenses they had during the year. In the vast majority of cases, however, funeral expenses are a nondeductible expense, which means that they cannot be deducted on a tax return. There are a few tax returns each year. They may legitimately include the cost of funeral expenses as a deduction.
Rules for Claiming Funeral Expense Tax Deductions
The primary rule for claiming funeral expenses as a tax deduction is that the costs must be paid out of a decedent's estate. In other words, funeral expenses are tax deductible if they are covered by an estate. They are never deductible if they are paid by an individual taxpayer. The estate itself must also be large enough to accrue tax liability in order to claim the deduction. Because of the large taxable threshold for estate taxes, many are exempt from taxation and do not need to use the funeral expense tax deduction. Estates that do meet the taxable threshold, though, may save quite a bit by taking advantage of the funeral expense tax deduction.
Deductible Funeral Expenses
Which funeral expenses are eligible for an estate tax deduction? Generally, any funeral cost that is relevant to the ceremony or burial and is a reasonable part of the service is eligible. This would include such expenses as the cost of hiring the funeral director, embalming and preparation fees, and interment of the body in a casket or a cremation urn. Qualified funeral expenses also include the costs associated with holding the funeral and the family reception, such as hiring a minister to deliver the eulogy, arranging transportation to the gravesite for the immediate family, florist fees, and even the cost of catered food at the reception.
Claiming Funeral Tax Deductions
To claim the little-known tax deductions for funerals, you must list them individually on Schedule J of Form 706. If the decedent's insurance policy reimbursed the estate for any of these costs, you'll have to deduct them from the total expenses you claim. Be sure to submit the completed Schedule J along with Form 706 "United States Estate Tax Return" when you file the estate return with the IRS.
Estate tax planning can be a complex subject. If you are the executor of an estate and you think that your estate may qualify for the funeral expense tax deduction, it may be wise to consult a qualified tax attorney for help.
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