Beneficiary Filing the Tax Return

• In some cases, an executor of an estate would take over in filing a 1099 and all other tax forms once a person dies. But a surviving spouse can also file a joint return if no estate executor is available. The Internal Revenue Service says a surviving spouse can continue to file as a widow (or widower) for up to two years and keep the same tax privileges as if she were still filing jointly. If an executor fills out the tax return, he has to indicate that he's signing on behalf of the deceased person. Similarly, the surviving spouse should indicate she's filing as a surviving spouse in the box requesting the spouse's name.
  
  

Interest on Investments

• Any type of interest accrued on the deceased's money market accounts or other investments from the time of death up to April 15 will be taxed. However, this can create some complications, especially if a survivor gets those investments as an inheritance. A survivor should immediately take ownership of the account or risk having a broker fill out a 1099 form on behalf of the estate. In some cases, the broker might list the survivor being responsible for the interest by mistake. In such cases, a survivor needs to fill out a Schedule B form on her own return to deduct this amount.
  
  

Taxes on Other Investments

• Interest accrued on Treasury bonds by a deceased person will also be taxed and needs to be reported on the inheritor's tax return. With individual retirement accounts (IRAs), it works a little differently. A widow won't be taxed on her late husband's Roth IRA as long as the account was open for five years when he died. If not, the Roth IRA can be rolled over into an Inherited Roth IRA that requires a holding period before funds can be withdrawn. Outside of that, a 401k and a traditional IRA of a deceased person will require a survivor to pay taxes once it's inherited.
  
  

Deductions and Refunds

• The IRS allows a survivor to deduct all medical expenses paid within one year after the deceased person's death. This can potentially remove some burden if the person who died had many medical bills before death. A standard deduction can be taken, however, if the survivor doesn't itemize all of the deductions. Survivors can also file for a refund on behalf of the deceased person. They need to file a 1310 form (or Statement of Person Claiming Refund Due a Deceased Taxpayer) to claim this.
  
  

Estate Tax

• In 2010, the federal estate tax was temporarily repealed. The estate tax has reappeared in 2011 with a 55 percent tax levy on property worth $1 million or more. "USA Today" reported in 2010 that the levy could potentially hurt those who have property worth just $1 million. Before 2010, Turbo Tax says, appreciation on a deceased person's property went through a date-of-death value process. This meant that any appreciation accrued before the owner's death was forgiven and any appreciation only after death would be taxed to the survivor inheriting the property.