One common tax myth is the belief that funeral expenses can be deducted. This misconception can lead to incorrect assumptions about tax benefits and potential issues with the IRS. Here's what you need to know to stay compliant and avoid these pitfalls.

Origin of the Myth

• Significant Expense: Many people assume that significant expenses, such as funeral costs, should offer some tax relief.

• Lack of Awareness: There is often confusion about the specific rules governing the deductibility of personal expenses.

Reality of Deducting Funeral Expenses

• Personal Expenses: The IRS generally considers funeral expenses to be personal expenses, which are not deductible on individual income tax returns.

• Estate Tax Deduction: Funeral expenses can be deductible if paid by the deceased's estate and claimed on the estate tax return (Form 706).

IRS Guidelines on Funeral Expenses

• Non-Deductible Personal Expenses: Funeral expenses, including costs for the funeral service, burial, or cremation, are not deductible on individual income tax returns.

• Estate Tax Deduction: If funeral expenses are paid out of the estate, they can be deducted from the estate's taxable income. This is claimed on Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return).

Why the Myth Persists

• General Misconceptions: Many taxpayers believe that all significant personal expenses should be deductible.

• Anecdotal Advice: Misleading information and anecdotal advice from non-professional sources perpetuate the myth.

Avoiding the Pitfall

• Understand the Rules: Clearly understand the IRS rules for deducting funeral expenses.

• Non-Deductible: Personal funeral expenses.

• Deductible: Funeral expenses paid by the estate and claimed on the estate tax return.

What You Need to Know

• Personal Expenses: Acknowledge that personal expenses for funerals are not deductible on your federal income tax return.

• Estate Deductions: If you are managing an estate, understand that funeral expenses can be deducted on the estate tax return.

What You Need to Do

• Keep Detailed Records: If handling an estate, maintain accurate records of all expenses paid by the estate, including funeral costs.

• File Form 706: For estates required to file an estate tax return, include deductible funeral expenses on Form 706.

Consulting a Tax Professional

• Seek Professional Advice: Consulting a tax professional can ensure you correctly identify and claim eligible deductions related to estate expenses.

• Accurate Records: A professional can help you maintain proper documentation and navigate the complexities of estate tax returns.