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The process of helping an older parent or parents file their taxes can be difficult–even if you have all the necessary documents. If your parent has diminished capacity or you need to chase down information, however, you can open your parent up to unintended delays in processing refunds or financial consequences.
Don’t be afraid to seek professional help in these matters to help “guide you through this minefield,” says Henry Grzes, lead manager for tax policy and advocacy with the American Institute of CPAs. “To navigate this on your own can be fraught with missteps.”
Here’s what you need to know.
Determine if the taxpayer has to file a return: A single person who is age 65 or older at the end of 2020 needs to file a return if his or her gross income was at least $14,050, according to Internal Revenue Service rules. That figure is $27,400 for married couples filing jointly who are both age 65 or older.
One thing to keep in mind: People who normally wouldn’t have to file based on their income threshold might need to file for the 2020 tax year to be able to claim the first or second round of stimulus payments, Grzes says.
Gathering the background information: Ideally, you’ll have access to copies of last year’s return, so you’ll be able to see the income and deductions and replicate them for the current year, says Michael H. Karu, a certified public accountant and partner at Levine Jacobs in Livingston, N.J. If you don’t have last year’s return, you may be able to get it from your parents’ tax preparer, with a parent’s permission, possibly for a fee, Karu says.
Alternatively, you can go online to request transcripts from the IRS, though you’ll need certain personal information, as well as access to the taxpayer’s email and mobile phone. You can also request copies of your parent’s tax account transcript (even for multiple years). This is available at no charge and will be sent to the taxpayer’s most recent mailing address on file. You’ll need details such as the taxpayer’s Social Security number and birthdate to make this request.
It’s also advisable to request a wage and income transcript from the IRS, which will give you all the IRS income reporting forms filed in the taxpayer’s Social Security number such as 1099s and W-2s for that tax year, says Or S. Pikary, a certified public accountant and senior manager at Mazars USA in Los Angeles. To do this, fill out IRS Form 2848, which gives you IRS authority to act on the taxpayer’s behalf. Generally, the taxpayer has to sign the form, though there are exceptions.
Signing the documents: If a parent is unable to sign for reasons such as decreased mental capacity due to Alzheimer’s or dementia, a family member may be able to sign tax-related forms and tax returns on their behalf. But you’ll need to take some extra steps to be able to do this legally, says Cameron Huddleston, family finance expert at Carefull, a service that helps financial caregivers organize and protect their loved ones’ finances.
For starters, you are going to want to make sure you submit to the IRS official copies of documents showing you’re the court-appointed conservator or the appointed agent under a power of attorney. Be forewarned: The IRS has specific requirements in terms of what it will accept, so if you aren’t sure, it’s best to inquire. Despite this, experts advise against signing on a parent’s behalf without going through proper channels.
If you’re acting as the taxpayer’s representative under a power of attorney, you’ll need to fill out IRS Form 2848 and send the appropriate documentation that shows you’re allowed to sign the form on the taxpayer’s behalf. If you’re a court-appointed guardian or conservator, you’ll want to use IRS Form 56 and attach the relevant documentation.
When filling out either form, make sure to follow the instructions carefully. Otherwise, the IRS won’t send the tax information you’re requesting—or process the parent’s return. On Form 2848, for example, if you are seeking documents or signatory authority for multiple years, make sure to specify which years, using the format spelled out in the instructions, Pikary says.
People also tend to get tripped up on Line 5a. There’s a checkbox that authorizes the agent to sign the return on the person’s behalf. But checking the box is not enough. The instructions provide the necessary language the agent needs to write on the lines provided, Huddleston says.
Also know that the IRS won’t accept digital signatures on this form if you file by paper or fax, Pikary says.
States may have their own forms, so be sure to check, Huddleston says.
What if the parent has died and you need to file a return on his or her behalf? As the executor of the estate, you can file the return on behalf of a parent. But you’ll need to file IRS Form 56 and include it with the tax return, says Grzes. Here, too, be sure to read the instructions carefully. You’ll also need to send the IRS an official copy of your appointment as executor, Grzes says. “Making a photocopy is not going to be accepted,” he says.
Write to retirement@barrons.com
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