With the passing of Hugh Hefner, many of us will reflect on both his accomplishments and his controversies. The man is a business legend and even though his brand, Playboy can be considered to be quite indecent it’s made headlines as one of the world’s most recognizable brands.
Hugh, who peacefully passed at his home at the age of 91, is an American icon who will be remembered as a cultural pioneer. Some may also remember his lavish parties, and it’s to be expected that like his parties, his ceremony will spare no expense.
Unfortunately, in the time of mourning one cannot forget the costs of funeral expenses, but there may be a way to save with tax deductions. Be prepared for the unexpected and take a look at how you can possibly save.
Funeral Expense Tax Deductions
We can’t tell when the unexpected will happen, but we can be prepared for the costs with a little planning. Part of planning involves knowing what to expect, and funerals are expected to be pretty costly. The average funeral in North America costs between $7,000 to $10,000.
This price range is for the most popular type of burial which is the traditional burial in a cemetery with a headstone method, even though cremations are becoming increasingly popular.
These estimates vary based on different funeral homes and regions of the country but the average costs for a few big ticket funeral items include $1,500 for the funeral director’s services, $1,000 for the cost of the grave site, $1,500 for the cost of a headstone, $500 for the use of the funeral home, and more.
If you were unexpectedly hit with these costs, you may be wondering if you can claim a deduction for these costs on your federal income tax return and the answer to that is tricky. It depends on if you qualify or not and most individuals do not qualify to claim a tax deduction for funeral expenses unless they paid for them with the funds of an estate.
That means if you’re settling an estate and you use the estate’s funds to pay for funeral costs you may be able to deduct those expenses. Also, the estate must be large enough to accrue tax liability to claim the deduction.
In order to claim your funeral expenses as a deduction if you qualify you must file Form 706, which is the United States Estate (and Generation-Skipping Transfer) Tax Return Form. It’s used to determine the value of the estate and will adjust the cost of the inherited property to fair market value.
To report the funeral expenses you must complete Schedule J, which is the Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims. Schedule J is attached to for Form 706, and this is where you will list your funeral related expenses.
They specifically need to be listed under Lina 1 of Section A and you will enter the total amount you spent under Total funeral expenses. The expenses you can claim include the casket, vault, cremation. Funeral home transportation, reception costs and more.
However, if the estate received any reimbursements for funeral expenses such as Veterans Affairs death benefits you must deduct that amount from your total funeral cost before filing Form 706 because you can’t claim a credit for it. Also, you will pay for all funeral expenses up front, and you will be reimbursed for them later.
Know Your Deductions!
We apologize for sharing such a grim topic of funeral tax deductions with you today, but as it’s almost October maybe it’s a fitting topic for Halloween. It’s our goal to spread as much tax knowledge as possible to help any and everyone files their returns!
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