Can Funeral Expenses Be Tax-Deductible? Untangling the Tax Implications

Can Funeral Expenses Be Tax-Deductible: As funerals are costly, this is a common query from the bereaved. Most individuals cannot deduct funeral expenses, but there are ways to manage them.

Physically, emotionally, mentally, and monetarily, the passing of a loved one is always a difficult burden to bare.

The majority of the time, if not always, death and passing occur unexpectedly, leaving family members to bear the burden of funeral expenses, which are frequently expensive, especially in the absence of burial insurance.

To alleviate the financial burden of funeral costs, many inquire about the tax deductibility of funeral expenses and whether they are eligible for tax relief.

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Can Funeral Expenses Be Tax-Deductible: Funeral expenditures costs

The price of death is not less than the price of life.

According to the 2021 General Price List Study of the National Funeral Directors Association, the national median cost of burial with visitation is $7,848, a 6.6% increase since 2016. During the same time frame, the cost of cremation increased by 11.3%, to $6,971.

Many individuals are considering the cost of burial insurance to cover funeral and cremation expenses in the event of an untimely death due to the skyrocketing costs of funerals.

Without burial insurance, these costs will be borne by surviving family members. It is therefore not surprising that individuals frequently inquire as to whether they can include funeral expenses paid in their itemised deductions to reduce their annual tax liability.

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Who can deduct funerary expenses and who cannot?

According to the Internal Revenue Service, an individual who pays for all or a portion of a deceased person’s funeral expenses cannot claim funeral or burial expenses on Schedule A of Form 1040.

In lieu of an individual, only funeral expenses paid out of the estate are tax-deductible against the decedent’s gross estate in order to calculate the net taxable estate and corresponding estate taxes, subject to a threshold.

Simply stated, individuals cannot claim tax deductions for funeral expenses paid out of their own pockets; only the estate of the deceased is eligible for funeral expense tax deductions.

It is essential to remember that funeral expenses are tax-deductible items specific to a deceased person’s estate (total value of their properties).

This is only tax-deductible for estates and not for individuals because estates pay estate taxes in excess of the IRS-established threshold ($12.92 million in 2023), whereas individuals do not.

The deductibility of funeral expenses is part of the tax relief offered by the IRS to the deceased and his or her estate, which is why only the estate can claim funeral expenses as tax deductions.

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How to budget for funeral costs

Whether or not funeral costs are tax-deductible, the fact remains that they are extremely expensive. Expenditure of funds for an unexpected event, such as a funeral, is likely to harm your savings and emergency fund.

However, there are steps you can take to alleviate the burden of funeral costs, such as:

• Burial insurance. Also known as final expense insurance, burial insurance helps cover the costs associated with a person’s death, including funeral arrangements, burial costs, medical bills, outstanding obligations, etc., by paying monthly premiums that can be claimed by the beneficiary upon the insured’s death.
• Prepaid funeral arrangements. You can make a prepayment, or advance payment, to a funeral home in full or monthly installments for prepaid funeral plans.
• Funeral assets. If you do not want burial insurance or to pay a funeral home directly in advance, you can establish a distinct funeral fund that your loved ones can access upon your passing. You can set up an automatic withdrawal from your savings account or resolve to depositing a specific amount every payday.
• Funeral expenses are deductible from the gross estate for tax purposes.
• An estate is the property and net worth of a deceased individual at the time of his death. This can include assets, legal rights, real estate, investments, bank accounts, and savings — essentially anything lawfully owned by the deceased.

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Before a funeral expense can be deducted against a deceased person’s gross estate, the executor or administrator must prove that the funeral costs were paid from the deceased person’s estate, such as their bank account balances.

Requirements for funerary expenses to be tax-deductible

IRS regulations stipulate that itemised deductions for funerary expenses can only be claimed if the deceased’s estate pays for them.

In addition, the IRS stipulates that the following funeral expenses must be “reasonable and necessary” to qualify as tax deductions:

• Casket or urn
• Burial plot
• Cremation or preservation
• Ecological internment services
• Tombstone or memorial
• Funeral home charges
• Expenses associated with funeral arrangements, such as banquets, catering, and floral arrangements.
• Transportation of the individual carrying the deceased to the cemetery
• Fees for religious services
• Unpaid ultimate medical expenses

In contrast, non-deductible funeral expenses include transportation costs for funeral visitors and family members, which are considered personal expenses and are covered by a burial insurance policy.

If you are the executor or administrator of the estate, keeping all receipts and documentation on all funeral expenses can help to substantiate the estate’s claims regarding funeral expenses and prospective litigation cases.

Which form is used to claim tax deductions for funerary expenses?
In lieu of Form 1040, funeral expenses are deductible and itemised on Form 706 Schedule J: Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims for estate tax returns.

The executor must file this form beginning in 2023 when the gross estate exceeds $12.92 million and the estate tax rate on the net taxable estate is between 18% and 40%.