The death of a family member is highly stressful - and can place an unexpected financial burden on the people who have been left behind. Depending on where you live, a funeral can cost anywhere from $5,000 to $25,000. If you've been put in a difficult financial position following a death in the family, you may be wondering if you can deduct funeral expenses or related costs from your tax bill at the end of the year to recoup much-needed funds.
Not all funeral expenses can be claimed from taxes, and not everyone is entitled to a deduction. Let's take a closer look at the circumstances where funeral costs can be deducted.
Can I Deduct Funeral and Cremation Expenses On My Income Tax Return?
Even if you've paid for the deceased person's funeral service, burial, or cremation in full, an individual cannot claim funeral expenses as part of your itemized deductions on your Form 1040.
Funeral expenses are only tax-deductible against a decedent's gross estate, not on the individual tax returns of the people who pay them. The estate has to pay taxes so that it can be claimed because the estate is the one that is subject to estate tax, not the individuals who pay the funeral expenses.
There is also a threshold for estate tax, which is the amount of an estate that is exempt from estate tax. In 2023, the estate tax threshold is $12.92 million. If an estate is below the threshold, then no estate tax is owed, and there is no need to deduct funeral expenses. However, if an estate is above the threshold, then estate tax is owed on the amount of the estate that is above the threshold. In this case, deducting funeral expenses can reduce the amount of estate tax that is owed.
Let's say a decedent has an estate worth $13 million, and the funeral costs are $100,000. The estate tax threshold is $12.92 million. Without deducting the funeral expenses, the estate would be subject to estate tax on the entire $13 million. By deducting the funeral expenses, the estate is only subject to estate tax on the remaining $12.9 million. This saves the estate $40,800 in estate tax ($1,200 x $34).
It is important to note that funeral expenses can only be deducted from a decedent's gross estate if they are reasonable. The IRS has no specific guidelines on what is considered a reasonable funeral expense, but it will generally consider factors such as the decedent's social status, the cost of living in the area where the funeral is held, and the cost of similar funerals in the area.
In other words, individuals can't claim tax on funeral expenses, and only the deceased person's estate can benefit from tax deductions.
How To Deduct Claims on Estate Tax Returns
If you administer an estate and use estate funds to pay for funeral expenses, you can use Form 706 to calculate estate taxes and liabilities. You have to complete Schedule J: Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims and with the itemized funeral expenses. Deduct any reimbursements you've received for the funeral costs from your expenses, e.g., government payouts like VA death benefits or Social Security.
If you are eligible to make deductions on the estate tax return, you can deduct expenses including:
Internment (e.g., the cost of the plot and burial expenses)
Green burial expenses
Caskets or urns
Funeral home facility costs
Funeral director's fees
Transportation costs for immediate family as well as the deceased
Religious leader or celebrant's fees
If you are going to claim, keep copies of all of the receipts for all of the tax-deductible funeral expenses.
The travel expenses of all of your funeral guests outside of the immediate family are not tax-deductible, and you cannot claim a tax deduction on any costs that were covered by a life insurance or burial insurance policy.
Preparing For Funeral Expenses
Funeral expenses can run high, even if you manage to deduct them. You might end up depleting your savings or landing in debt unexpectedly. The only way to avoid the situation is to plan ahead. Final expense insurance will help you and your family cover the cost of a person's passing, including the burial and cremation costs, funeral service, and other expenses. Unlike a prepaid funeral plan, the money can be spent in any way you wish and on anything you think is needed. Payouts are extremely fast, which can help you stay on top of the deceased's final wishes without dipping into your savings.
Unlike other life insurance policies, these policies are available to almost anyone - including the elderly or individuals who have pre-existing medical conditions.
Tax Deductible Funeral Expenses: The Final Word
Are funeral expenses tax deductible? It is only for eligible estates and not for individual taxpayers, unfortunately. To recap:
You cannot deduct funeral expenses from your taxable income as an individual.
You can only deduct funeral expenses when they are paid by the estate of the deceased person, and the executor has to file the tax return and itemize the various costs paid by the estate to claim tax relief.
Any reimbursements by Veterans Affairs, other government schemes, or funeral plans should be deducted from the total cost claimed.
Not all of your funeral arrangements are tax deductible, and the IRS may deny nondeductible expenses if they think they are unreasonable.
The best way to alleviate the financial burden of a funeral is to take out a final expense policy. These policies will help your loved ones cover the cost of the funeral, including the burial, cremation, service, officiant's fees, and other costs you need to settle. They are available to nearly everyone, and everyone can benefit from one.
Speak to Final Expense Direct about finding a final expense policy that suits your needs.
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