When a loved one passes away, most families hold a funeral to mourn, remember the deceased’s life and pay last respects. While these events are a good way to gather family and friends to honor the deceased, funerals can be expensive. So, it’s no wonder that many people ask if funeral expenses tax-deductible. The answer depends on who is paying and what kind of estate is left behind. Here’s how it works. Consider working with a financial advisor as you make an estate plan or update an estate plan.
Basic Considerations
Funeral costs vary from region to region and the details of the burial service. According to the National Funeral Directors Association, the average cost of a funeral with a viewing and burial is $7,848. For families that choose cremation, the average drops to $6,971. Because funerals can be a major expense for some families, Social Security and the Department of Veterans Affairs (if eligible based on military service) provide benefits to help defray the costs.
The ability to deduct funeral expenses on your tax returns depends on who paid for the funeral expenses. Unfortunately, funeral expenses are not tax-deductible for individual taxpayers. This means that you cannot deduct the cost of a funeral from your individual tax returns. While individuals cannot deduct funeral expenses, eligible estates may be able to claim a deduction if the estate paid these costs. However, if your estate is below the $12,060,000 federal estate tax exemption limit (2022 tax year), you cannot use this deduction.
Which Estates Can Deduct Funeral Expenses?
If your estate is above the $12,060,000 federal estate tax exemption limit, you’ll want to claim eligible deductions to reduce taxes. With estate taxes of 40%, every dollar that you are able to reduce your taxable income equals huge savings. To claim funeral expenses on the estate’s tax return, you’ll need to complete Schedule J of Form 706. All of the eligible expenses should be itemized to adequately disclose what each expenditure was for.
If the estate was reimbursed for any funeral costs, that reimbursement must be deducted from your total tax deduction. This includes payments from Social Security, Veterans Affairs, final expense insurance and other sources.
Tax-deductible funeral expenses
If you are eligible to deduct funeral expenses on your estate’s tax returns, be aware that not all funeral expenses are tax-deductible. The following expenses qualify for a tax deduction for eligible estates, as long as they are reasonable in nature:
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Embalming or cremation
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Casket or urn
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Burial plot and burial (internment)
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Green burial services
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Tombstone, gravestone or other grave markers
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Funeral home facility costs and director fees
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Funeral service arrangement costs, including floral and catering services
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Transportation costs for the deceased and immediate family members
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Minister, rabbi or other religious leader service fees
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Catering food at the reception
Be sure to keep copies of receipts for all expenses. This makes it easier to keep track of the total funeral cost. Plus, you’ll need them in case of an audit.
Non-deductible funeral expenses
The Bottom Line
Funeral expenses can cost thousands of dollars on average. With such a large expense, it is common to wonder if funeral expenses are tax-deductible. Being able to reduce your taxes can minimize the financial impact on your family. While you cannot claim funeral expenses on an individual tax return, you may be able to deduct them from your estate tax return if the size of your estate qualifies.
Estate Planning Tips
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Figuring out how to pay for a funeral and cover other expenses after you’ve passed away can be a challenge. A financial advisor can help you determine the right amount of life insurance and find the best type of policy for your situation. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Rather than relying on your family to pay for funeral expenses, many people choose life insurance. These policies are generally large enough to cover multiple goals. These goals include burial expenses, college for kids or grandkids, paying off the mortgage and eliminating household debt. To determine how much life insurance you need, our life insurance calculator provides a personalized recommendation based on your financial situation and goals.
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