Taxes are enough of a headache, as is when you’ve got a simple return. But when you’ve got a business or investments or are the executor of a probate case, taxes quickly increase in complexity. No wonder so many people seek professional help from lawyers and accountants when dealing with probate, which can sometimes take years to finalize. To make things easier, familiarize yourself with these facts and tips.

Filing Taxes Is Usually Required

Expect to file taxes if you sell anything from the estate for more than $600 or if the person who owned the estate earned income over the last calendar year of their life. Estate taxes are also required even if there was no sale. Some people are surprised to learn that estate taxes can account for up to 40% of an estate’s value (although it’s usually closer to 1/6 of the estate’s worth), including its assets, so it’s important to prioritize paying taxes to avoid a hefty fine.

Although the state of Arizona doesn’t have an estate tax, other states do. You’re also still responsible for federal taxes. In 2017, only 2 out of every 1,000 estates owed federal estate tax, and just a handful of small businesses or farms owe any estate tax at all. Still, you don’t want to find yourself in the awkward position of owing taxes that you didn’t plan for.

As long as you have money to pay taxes, the process is quite similar to your personal income taxes. Both state and federal tax filing processes recognize that executors file taxes for others as part of probate. When filing a tax return, you’ll have the option to specify whether you are a third party acting on someone else’s behalf and if that person is deceased. However, these returns can take longer to process than personal income taxes.

Beware of Capital Gains Taxes

During probate, assets may transfer from the estate to a beneficiary who will then be responsible for capital gains taxes. In fact, this may be the first time these assets have ever been taxed! Therefore, executors should be sure to inform beneficiaries of these costs, so they can prepare to pay taxes in the future. Fortunately, grantor retained annuity trusts (GRATs) let some assets transfer between people without taxes when assets such as stocks quickly gain value.

This all might sound overwhelming, especially if you’re dealing with a sudden loss. Dana Law Group is happy to help if you have questions about taxes and probate or the probate process in general. Reach out if you need guidance during this confusing time.

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