Most experts agree that funeral planning should be undertaken with the guidance of an attorney or financial advisor. Because of the high costs associated with funerals—not to mention the tricky tax laws when it comes to inheritance—it can be difficult to navigate the waters alone. This is true for the phase of funeral planning as well as when tax season rolls around.
Most medical expenses not covered by insurance can be claimed on a tax return (assuming you itemize your deduction), and keeping good track of all monies paid for the medical care of the deceased is a good idea if you want to claim some of the funds you paid out of pocket. Things like hospital stays, surgery, hospice care, medication, and other end-of-life concerns all apply under this setting.
However, although the process of death can be costly, the funeral itself isn’t covered under these terms. Once the body goes into the hands of a funeral home, medical expense deductions no long apply.
Instead, funeral expenses fall under the category of estate tax law. Estates that are valued over five million dollars (including everything from assets, property, retirement savings, stocks, bonds, and life insurance) become subject to estate taxes under IRS regulations. Because most funerals are paid for out of this estate, they become a tax deduction applicable against what is owed to the government through estate taxes.
Some of the items that might qualify for this deduction include:
- Final illness costs
- Funeral costs
- Casket costs
- Burial/Cremation costs
- Administration costs
*Note: If the estate is being passed on to a surviving spouse, estate taxes don’t apply. Children who inherit the estate, however, will be expected to pay taxes on the acquired property and assets.
Who to Contact for Funeral Planning Help
Because the United States tax code is difficult for most people to untangle on their own, it’s a good idea to consult with an estate lawyer or financial planner—the sooner, the better. Many of the more complicated tax issues can be avoided by setting up the estate and funeral plans in such a way to avoid unnecessary taxation. Burial insurance and other funeral pre-plan options are designed for scenarios like this.
If you’re paying out of pocket for the funeral of the deceased, chances are there are no tax benefits coming to you. However, you can consult most accountants for help on determining what minor expenses related to final care might be applied toward your annual tax deductions.