Funerals are expensive. The cost of a funeral is on the rise, and most people pay anywhere from $3,000-$10,000 total. This is quite a financial burden for most families. It’s no wonder that people are looking for ways to reduce this cost.
Jump ahead to these sections:
- Federal Tax Deductions for a Funeral or Burial
- State Tax Deductions for Funeral Expenses
- End of Life Estate Planning
There’s one big question many family members have about funerals. Do they qualify for a tax deduction? There are many tax deductions available for all kinds of things each year. There are deductions for buying a house, medical treatment, school, and so on.
What about funerals? In this guide, we’ll discuss whether you can claim funeral or burial expenses as a tax deduction in 2019.
Virtual funeral tip: The cost of a virtual or hybrid funeral, using a service like GatheringUs, may also be tax-deductible, depending on the circumstances. Whether you hold the funeral in person or virtually, many of the same rules apply. A tax professional can help you determine whether your expenses are deductible or not.
Federal Tax Deductions for a Funeral or Burial
Your specific tax situation depends on several factors. Tax codes and rules are not always clear, especially if you don’t have professional tax experience. When in doubt, consult with a tax professional or an estate attorney.
First, let’s look into how these tax deductions take place on the federal level.
On a 1040 Form
The Internal Revenue Service (IRS) sets strict rules about what expenses can and cannot be deducted from your tax bill. Funeral and burial expenses are only tax deductible if they’re paid for by the estate of the deceased person.
In short, these expenses are not eligible to be claimed on a 1040 tax form. The 1040 tax form is the individual income tax form, and funeral costs do not qualify as an individual deduction. Review the full list of non-deductible expenses by reading the IRS’ Miscellaneous Deductions Guide.
Many people mistakenly believe that funeral expenses might count under medical expenses. In reality, the IRS only allows deductions for medical expenses paid to prevent or treat an illness. This doesn’t include funeral expenses.
Even if you pay for your loved one’s funeral yourself, you cannot deduct these expenses. The executor is in charge of deducting any expenses on the estate tax form 706 only if the estate qualifies under federal and state laws.
On an estate tax form (Form 706)
Form 706 will need to be filed if the gross estate plus any taxable gifts gifted during the descendant’s lifetime are valued at more than $11.4 million for 2019. Only estates with combined assets over this amount need to file the state tax form (Form 706).
Estates that qualify for this tax might be eligible for deductions to reduce the amount owed. However, these deductions need to be reasonable, necessary, and allowable. Here are common estate tax deductions:
- Funeral service - Any expenses related to the funeral or cremation service are eligible. These include the cost of catering, clergy fees, reception space, floral arrangements, and so on.
- Burial expenses - The costs of burial or cemetery plot also qualifies. This includes deductions for the headstone cost, burial plot cost, and any other burial fees.
- Transportation - Any transportation needed during the funeral process, such as a hearse or limousine are also covered.
- Service fees - The basic death service fees also count as deductible costs. This refers to death certificate fees, funeral directing, embalming, and body preparation.
All of these deductions above need to be deemed as “reasonable and necessary” for the IRS to approve them as deductions. This is always up to the IRS’s discretion. Any fees that seem exaggerated could leave you on the line for payment.
Any expenses that were reimbursed from another source, like a local organization or group, do not qualify. If the estate is large enough, the executor is responsible for filing IRS Form 706. Schedule J of this form is for funeral expenses. These need to be an itemized list, so be sure to track all expenses. This is due within nine months of the deceased person’s death.
For 2019, estates that are under the $11.4 million threshold do not need to deduct expenses since they are not liable for any estate tax.
Additional estate deductions (Form 706)
There are additional deductions that you might also pick up on the Estate Form 706 after a loved one passes. Aside from funeral expenses, you might also be able to deduct:
- Charity - Any value of the property donated to charity is often deductible.
- Spouse - The value of any property given to the decedent's spouse is also tax-deductible in most cases.
- Debts - If the deceased person had debts at their time of death, this could is deductible from the taxable estate value.
- State payments - Finally, If the deceased person owes any tax to the state, this is deductible on the federal level.
It’s also important to note that estates that continue to earn income might need their own tax returns. If this is the case, funeral expenses are no longer deductible.
An estate attorney is an excellent resource for learning more about estate planning needs.
State Tax Deductions for Funeral Expenses
Federal deductions for funeral expenses are only one side of the story. Laws and rules vary by state, so check with your state to determine the specific situation.
Do state deductions follow the same threshold?
State tax codes use different value thresholds. For 2019, the $11.4 million federal threshold isn’t the norm for every state. Some states have significantly lower taxable thresholds, so you might owe a state estate tax. In this case, you’ll need to file the IRS Form 706 with the state instead of the federal government.
The states with a lower estate tax threshold are:
- Washington D.C.
- New York
Funeral deductions for state taxes
Similar to the federal deductions level, there are similar deductions available for state estate taxes. Again, you’ll need to create an itemized list of deductions on Schedule J of IRS Form 706. These deductions follow the same structure as the federal deductions.
Keep track of your funeral spending to ensure you’re not missing out on any deductions, as certain funeral expenses may be state deductible, depending on the state.
End of Life Estate Planning
Most people don’t have to worry about the estate tax since most estates simply don’t qualify. In fact, according to the Center on Budget and Policy Priorities, only 2 out of every 1,000 estates in America had to pay the estate tax in 2017.
The best way to prevent your family from struggling with the burden of end of life expenses is to plan ahead. Looking into low-cost funeral options and how to budget for funeral costs has never been more critical.
The cost of a natural burial, for example, is significantly less than a traditional burial. More people are considering a natural burial for cost and environmental reasons. Ultimately, these are the questions worth asking now.
The Reality of Funeral Tax Deductions
There are a lot of misconceptions about how tax deductions work for funerals and burials. With costs rising, more people are looking for ways to afford memorials and arrangements for their loved ones after death.
The unfortunate reality is that funeral and burial costs are not tax-deductible on individual tax returns. The best thing you can do is create a plan for the future. Setting up your own estate plan ensures your loved ones won’t have to make hard choices about your funeral and other death-related expenses.
Disclaimer: The information posted on this site is provided solely for informational and educational purposes and is not legal advice or tax advice. Contact an appropriate professional licensed in your jurisdiction for advice specific to your legal or tax situation.