How to File the Final Tax Return for a Deceased Person in North Carolina

How-To Guides 16 min read

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You’re probably looking at tax documents and thinking, “Do I really have to deal with this right now?” The answer is yes, but it’s not as complicated as it might seem. Filing a final tax return for someone who’s died is a legal requirement, and getting it done correctly actually protects you and the estate from costly penalties and audits later.

Afterpath’s AI guide Pathfinder can walk you through NC-specific tax deadlines and filing requirements in plain English, answering questions specific to the deceased’s income and situation. Our task management system tracks both federal and state deadlines so nothing gets missed. For more complex tax situations, especially estates with significant income or business interests, Afterpath’s marketplace connects you with vetted NC tax professionals and CPA advisors.

Understanding the Final Tax Return

When someone dies, they have one final tax return to file covering the period from January 1 through the date of death. This is called the “final 1040.” It’s your responsibility as executor to file this return, and the deadline doesn’t change just because the person has died, it’s the same April 15 (or the first business day thereafter) that applies to living taxpayers.

This return is separate from:

The estate income tax return (Form 1041) – Filed if the estate earns income during administration (interest, dividends, rental income)
State income tax returns – NC requires a separate final state return
Any business returns – If the deceased owned a business, additional returns may be required

Let’s start with the final 1040, then we’ll cover estate income tax and NC requirements.

Step 1: Determine If a Return Is Required

Not every deceased person requires a final tax return filed. The IRS has minimum income thresholds, and if the deceased’s total income for the year falls below that threshold, no return is required.

For 2024, a final return is required if:

The deceased was a single filer and had gross income of $14,600 or more (or $1,150 if self-employed)
The deceased was married filing jointly and had gross income of $29,200 or more
The deceased claimed dependent status and had gross income of $1,500 or more

However, best practice is to file a return even if income is below these thresholds because:

Withholding may have occurred, if taxes were withheld from Social Security, pensions, or employment, you’ll get a refund when you file
Filing creates an official record that the estate has been settled
The IRS won’t contact you later asking why no return was filed
It’s required for obtaining a discharge letter from the estate (something you may need for final beneficiary distributions)

Step 2: Gather Income Documents

The final return includes all income the deceased earned from January 1 through the date of death.

What counts as income:

Wages and salary – Request a final W-2 from all employers (the employer has until January 31 to provide this)
Self-employment income – Collect Schedule C records, 1099-NEC forms, and client invoices
Interest income – Savings accounts, CDs, bonds (banks and credit card companies send 1099-INT forms)
Dividend income – Stocks, mutual funds (companies send 1099-DIV forms)
Rental income – If the deceased owned rental property (need Schedule E)
Social Security benefits – The Social Security Administration sends SSA-1099 forms
Pension or IRA distributions – Forms 1099-R from financial institutions
Capital gains – Sales of stocks, real estate, or other assets (need brokerage statements or sale documents)
Income from a deceased person’s estate or trust – If the deceased was a beneficiary of another estate

Collect all 1099 forms directly from the sources. Request them by phone, email, or online portal if you can access the accounts.

Don’t wait for forms to arrive by mail if you already know the amounts. You can request them directly through the financial institution’s website or customer service. You may have access to online banking portals where you can view annual summaries.

Step 3: Determine Whose Social Security Number Goes on the Return

The return is filed using the deceased person’s Social Security number (not the executor’s). On the return itself, you’ll write “DECEASED” across the top with the date of death.

Important: If the deceased died before April 15 of the year following their death, you file the return using their name and SSN. The IRS system is set up to handle this.

Step 4: Understand Filing Status

Filing status for a final return is based on the deceased’s status on December 31 of the year they died (not the date of death).

Options:

Single – Use this if the deceased was unmarried on December 31
Married Filing Jointly – Available only if the surviving spouse files jointly. This option only applies if the surviving spouse hasn’t remarried by December 31 of the year of death
Married Filing Separately – Available if the surviving spouse prefers not to file jointly
Head of Household – Available if the deceased qualified (typically if unmarried and supporting dependents)
Qualifying Widow(er) – Available for the two years following the year of the spouse’s death, if conditions are met

In most cases, “married filing jointly” with the surviving spouse is the best option because it uses both standard deductions and typically reduces taxes. However, this requires the surviving spouse to consent. If there’s conflict in the family, “married filing separately” may be necessary.

Step 5: Account for Deductions and Credits

A person who dies partway through the year gets the same standard deduction as someone who lived the full year.

For 2024, the standard deduction is:

Single: $14,600
Married Filing Jointly: $29,200
Married Filing Separately: $14,600
Head of Household: $21,900

If the deceased itemized deductions in prior years, you’ll need to decide whether to itemize on the final return. Collect:

Mortgage interest statements (Form 1098)
Property tax records
Charitable contribution receipts
Medical expenses paid (though only amounts exceeding 7.5% of adjusted gross income are deductible)

Tax credits available to deceased persons include:

Earned Income Tax Credit (EITC) – If the deceased had earned income and qualifying dependents
Child Tax Credit – For dependent children
Retirement Savings Contribution Credit – If the deceased made IRA contributions
Education credits – If the deceased or spouse paid qualified education expenses

Don’t assume you know which credits apply, consult IRS Publication 559 or ask a tax professional if the income situation is complex.

Step 6: Account for Expenses of the Final Illness and Funeral

Here’s something that surprises many people: funeral expenses and medical bills from the final illness are not deductible on the deceased’s personal income tax return. They’re paid from the estate, not from the deceased’s individual taxes.

However, they can potentially reduce the estate’s income tax burden if the estate earns income during administration. This is covered in the estate return (Form 1041).

Step 7: File the Return

You have three options for filing:

Option 1: Use tax software – TurboTax, H&R Block, and TaxAct all have modules for filing final returns. This is the cheapest option ($50-150) and works well for straightforward situations. You’ll answer questions, input the income documents, and e-file the return directly. The software will calculate your refund or balance due.

Option 2: Hire a CPA or tax professional – For more complex situations (business income, rental properties, significant capital gains), a professional ensures accuracy. Cost is typically $300-1,000. They’ll file electronically and handle any follow-up correspondence with the IRS.

Option 3: Prepare it yourself and file by mail – Download Form 1040 and attachments from IRS.gov, prepare manually, and mail with a check (if balance due) or just the forms (if you expect a refund). This is free but slow, mail processing takes 4-6 weeks.

Electronic filing is strongly recommended because you get confirmation of receipt, and refunds are processed faster (typically 21 days vs. 6-8 weeks for mailed returns).

Step 8: Handle the Refund or Balance Due

If the deceased is owed a refund:

Don’t deposit the check to a personal account
Endorse it to the “Estate of [Deceased’s Full Name]”
Deposit into the estate checking account
The refund is now part of the estate and will be distributed according to the will or NC intestacy law

If there’s a balance due:

Write the check from the estate checking account
Make it payable to the “United States Treasury” (not IRS)
Include the deceased’s SSN and “Form 1040” on the memo line
Mail with Form 1040 if filing by paper, or pay online at IRS.gov

If the estate doesn’t have enough funds to pay the balance due, you may need to pay it from your own pocket temporarily, then reimburse yourself from the estate once accounts are settled. Don’t ignore a balance due, penalties and interest accrue quickly.

Step 9: Understand the NC Final State Return

North Carolina requires a separate final state income tax return (Form D-400) even if no federal return is required.

NC filing thresholds for 2024:

Single: Gross income of $12,750 or more
Married Filing Jointly: Gross income of $25,500 or more
Married Filing Separately: Gross income of $12,750 or more
Head of Household: Gross income of $16,100 or more

NC has its own standard deduction (lower than federal), so it’s possible that no federal return is required but an NC return is.

How to file NC return:

Use NC form D-400 (available at ncdor.gov)
File by April 15 (same deadline as federal)
Mail to the NC Department of Revenue with payment, or e-file through approved vendors (TurboTax, H&R Block, etc. can file both federal and NC returns together)
Include a copy of the death certificate with mailed returns

NC allows the standard deduction on final returns but generally doesn’t allow the same tax credits as federal (child tax credits, education credits, etc.). Check the current year’s NC tax guide for details.

Step 10: File the Estate Income Tax Return (Form 1041) If Needed

The estate income tax return is different from the final personal return. It’s required if the estate earns income during administration.

When is it required?

The estate earned income (interest, dividends, rental income, business income) for the tax year being filed
Gross income for the estate for the tax year was more than $600

What income is included?

Interest on bank accounts held in the estate’s name
Dividends from inherited stocks or mutual funds
Rent from inherited real property
Business income if the deceased owned a business that’s continuing

What’s not included?

The appreciated value of inherited property (not taxable to the estate)
Principal distributions to beneficiaries (not taxable to the estate)
Proceeds from life insurance policies (usually not taxable)

The Form 1041 is complex. If the estate earned more than a few hundred dollars, hire a CPA who specializes in estate taxation. The return requires specific calculations, income allocation to beneficiaries, and coordination with beneficiaries’ personal returns (they’ll receive Schedule K-1 statements).

Step 11: Notify the Social Security Administration

This is critical: You must notify Social Security of the death. If you don’t, they may continue paying benefits, and you’ll be required to repay them.

How to notify:

Call 1-800-772-1213 (Social Security’s general number)
Visit your local Social Security office in NC
Report the death online at ssa.gov

After notification:

Social Security will stop the deceased’s benefits
The surviving spouse and any dependent children may be eligible for survivor benefits
Any overpayments (benefits paid after death) will be deducted from the final check or may need to be repaid

Social Security can also delay your final refund if they overpaid benefits. That’s another reason to notify them promptly.

Step 12: Track Deadlines and Organize Records

Key deadlines to remember:

April 15 – Final 1040 due (federal and NC state returns)
60 days after death – Will filing deadline in NC (separate requirement, but affects when you can file tax returns)
90 days after creditor notice – Can’t make final distributions until this passes (creditors can claim against estate)
Ongoing – If the estate earns income during administration, Form 1041 is due April 15 each year the estate is open

This is where Afterpath’s task management system helps tremendously. You input the date of death, and our system automatically calculates every deadline, including both federal and NC tax deadlines. You’ll get reminders before each deadline, ensuring nothing slips through.

Keep organized records:

Save all 1099 forms and income documents by year
Keep copies of filed returns and confirmation receipts
Document any deductions claimed
Maintain a timeline of estate income and distributions
Save all correspondence with the IRS or NC Department of Revenue

Common Situations and How to Handle Them

Situation 1: The deceased had significant unrealized gains in inherited property

If the deceased owned stocks or real estate that increased in value at death, beneficiaries receive a “step-up in basis.” This means the property’s value is “stepped up” to the fair market value on the date of death, eliminating the tax burden. This step-up is automatic, you don’t claim it on the final return, but you need it documented for beneficiaries’ records.

Situation 2: The deceased had a traditional IRA or 401(k)

Retirement accounts don’t go through probate, they pass directly to named beneficiaries. However, the custodian (the financial institution) will issue a 1099-R form reporting the distribution. If the beneficiary is not a surviving spouse, they’ll have tax obligations. This is complex and varies by account type. Hire a tax professional if the IRA or 401(k) is substantial.

Situation 3: The deceased was due a refund but there’s also an outstanding debt to the IRS

The IRS can offset a refund against prior-year tax debts. The offset happens automatically when you file. If the deceased had prior-year debt, the refund may be reduced or eliminated. The IRS will notify you of any offset.

Situation 4: The deceased had a business as a sole proprietor

If the deceased operated a sole proprietorship, their final return needs to include all business income through the date of death. File Schedule C with the final 1040. You’ll need:

Income and expense records for the business through death
Documentation of inventory or assets if the business is being sold
Outstanding invoices (accrual-basis businesses only; cash-basis includes only collected payments)

If the business continues under someone else’s management, the business may file separate returns. This requires a tax professional’s guidance.

Situation 5: The deceased was married but the surviving spouse doesn’t want to file jointly

You can file separately. Form 1040 allows “Married Filing Separately” status. This increases the tax burden (higher rates, loss of some credits) but may be necessary if there’s family conflict or if the surviving spouse prefers to file their own separate return without mixing finances. This situation definitely warrants a professional’s input.

NC-Specific Considerations

North Carolina’s unique requirements:

Shorter statute of limitations in some cases – NC allows the Department of Revenue to assess taxes within 3 years for most situations, but 6 years for substantial underreporting of income
No income tax withholding on out-of-state retirement accounts – If the deceased received distributions from non-NC retirement accounts, NC may require separate estimated tax payments during the final year
State death tax – North Carolina does not have an inheritance tax or estate tax, so beneficiaries inherit property tax-free from an NC tax perspective. However, federal estate tax may apply to large estates
County-specific rules – Some NC counties (particularly larger counties) have local tax requirements that may apply to estates. Check with your county’s department of social services or tax assessor

FAQ

Q: Do I have to file a final tax return even if the deceased had no income?

A: If income is below the threshold, no return is legally required. However, if any income was earned (even $1), filing is smart practice. It prevents future IRS inquiries and ensures official closure. If the deceased had taxes withheld (from pensions, Social Security), filing gets you a refund.

Q: Who files the final tax return, the executor or the beneficiaries?

A: The executor files the final individual return (Form 1040). The estate (through its administrator/executor) files the estate return (Form 1041) if applicable. Beneficiaries file their own personal returns reflecting their inherited income and distributions.

Q: What if I file the final return late?

A: The IRS assesses a failure-to-file penalty (5% of unpaid tax per month, up to 25%) and a failure-to-pay penalty (0.5% per month). Interest is also calculated. If you file late but are owed a refund, no penalty applies. If balance is due, pay as quickly as possible to minimize interest.

Q: Can I file the final tax return electronically if the person is deceased?

A: Yes. E-file using tax software or a CPA. Write “DECEASED” with the date of death on the return. The IRS system handles this routinely. E-filing is faster and more reliable than mailing.

Q: What if the deceased had foreign income?

A: Foreign income is taxable to US citizens and residents. Report it using Form 1040 Schedule B (for interest and dividends), Schedule C (if self-employment), or Schedule E (for rental income). You may also need to file Form 5471 (foreign corporation income) or Form 5472 (foreign partnership) depending on the assets. Foreign taxes paid may be claimed as a credit on Form 1118. This situation requires a CPA experienced in international taxation.

Q: Can Afterpath help me understand if I need a CPA or if I can file myself?

A: Absolutely. Pathfinder, Afterpath’s AI guide, can review your specific situation and advise. Simple situations (W-2 wages, some interest/dividends, standard deduction) can be DIY. Complex situations (business income, rental property, significant capital gains, multiple states) warrant professional help. Afterpath’s marketplace connects you with vetted tax professionals if you need them.

Q: What if I discovered income after I already filed the final return?

A: File an amended return (Form 1040-X) immediately. The IRS prefers amended returns to audits. Include a note explaining why the income wasn’t reported originally. The amended return recalculates tax and either increases the amount owed (you’ll pay with interest) or increases a refund.

Closing Thoughts

Filing a final tax return for someone who’s died is a legal requirement, but it’s also a concrete way to honor their financial affairs with accuracy and care. You’re not doing this alone, tax software, professional CPAs, and resources like Pathfinder make this manageable even if taxes have never been your strong suit.

The fear of making a costly mistake is understandable, but the process is straightforward if you take it one step at a time: gather documents, determine filing requirements, input the information, and file.

Dealing with probate while grieving is one of life’s hardest challenges. You don’t have to figure it out alone.

Afterpath was built for exactly this moment – to turn the overwhelming chaos of estate settlement into a clear path forward. Our AI guide Pathfinder is available 24/7 to answer your tax questions specific to NC, our task system ensures you never miss a deadline, and our marketplace connects you with vetted tax professionals when you need expert guidance.

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