Are Funeral Expenses Tax Deductible?
When a loved one passes away, the last thing you want to be thinking about are taxes, but when tax season rolls around, you may start to ask yourself “Are funeral expenses tax deductible?” In most cases they are not deductible by individual taxpayers, but there are some cases where you can claim funeral costs on your taxes.
We will explore the question of funeral tax deduction in the following article.
Which Estates Can Deduct Funeral Expenses?
Can you claim funeral expenses on taxes? The answer is no, unless you used an estate’s funds to pay for the expenses, and said estate is worth more than the federal estate tax exemption limit, which, in 2023, is $12.92 million. Above this limit, an estate is subject to federal estate taxes and must file an estate income tax return.
Note that if the estate was reimbursed for any funeral costs, tax-deductible amounts are reduced as the reimbursement must be taken out of your total deduction. This means, for example, if the estate paid for interment fees, and was then paid back, those costs can not be claimed as a tax deduction.
Tax-Deductible Funeral Expenses
We have shared some of the most common tax breaks that are provided to eligible estates regarding funeral expenses below.
Cremation costs may be used as tax deductions if covered by the deceased person’s estate. This includes all cremation fees, which are an average of $4,000 and $7,000. Fees cover the transfer of remains, body preparation, and use of facilities, along with the cremation process, as well as memorial services or a funeral service.
2. Casket or Urn
The average price of a casket in the USA falls between $2,000 and $5,000, and the average urn could cost anywhere from $70 to $2,250. Green burial containers are $50 to $350. These costs could be tax deductible if the costs are reasonable and necessary, and are paid by the deceased person’s estate.
In the US, interments (burials) cost an average of $7,848, but in some places, charges can rise to $12,000. Burial expenses are tax deductible, but only when the estate of the deceased person pays for the costs.
In this case, if the gross estate is eligible (if it exceeds $12,920,000 in value and none of the costs were reimbursed), then funeral expenses including the burial plot and interment can be claimed on the federal estate tax return.
4. Tombstone or Gravestone
Depending on their materials and how elaborately they are decorated, flat grave markers can cost anywhere from $800 to $6,000, pillow headstones can be $2,000 to $10,000, and upright headstones can range from $1,600 to $25,000. These costs may be tax deductible for eligible estates, as long as they are deemed reasonable and necessary by the IRS.
5. Funeral Home Facility Costs
Holding a funeral in a funeral home can cost anywhere from $6,971 to $7,848 on average. For most individual taxpayers wondering if these funeral expenses can be deducted on Form 1041, the answer is no.
Funeral costs can only be used as a tax break if the costs are incurred by the estate of the person who has died, and if the estate is eligible, and the executor has completed Schedule J, (Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims), on Form 706.
6. Funeral Home Director Fees
Along with service fees, funeral costs include paying the funeral director, as well as staff, services, and merchandise that will be available during the viewing and service.
You can write off funeral expenses from the deceased person’s United States estate tax bill if you are the administrator of the estate, so long as the estate meets or exceeds the federal estate tax exemption limit of $12,920,000.
7. Funeral Service Arrangement Costs
Funeral services can be difficult to plan for individuals who are grieving, and people are often hired to take care of the arrangements, like catering, religious leader services, type of burial or cremation, florist fees, and more.
If the costs of a deceased person’s funeral service arrangements are coming out of estate funds then these costs may be tax deductible. The estate must meet eligibility requirements, and must not have been reimbursed for these payments to qualify.
8. Green Burial Services
Green eco-friendly burial services involve burying an individual in a biodegradable shroud or in a simple, natural container or casket that is biodegradable, often made from wicker, natural fiber, or sustainably harvested wood. These costs are often less than a traditional burial.
If you are a taxpayer wondering “Can I deduct funeral expenses for my mother’s green burial?” The answer is the same as it would be for any traditional funeral costs; you cannot deduct funeral expenses, except in specific cases in which your mother’s funeral costs were originally paid for by her eligible estate.
9. Transportation Costs
To transport the body of the deceased individual in a hearse can cost upwards of $350. These costs, as well as expenses incurred by immediate family members during travel to and from the funeral, can be deducted when the estate that has paid for the funeral is considered eligible by the IRS. Transportation of funeral guests is not tax deductible.
Non-Deductible Funeral Expenses
While there are certain cases in which an estate’s funding can pay for funeral costs, not all funeral expenses can be deducted when you pay taxes. The following expenses are some that can’t be deducted from federal tax returns.
1. Travel Expenses for Funeral Guests
Funeral guests must pay for travel and lodging costs out of their own pocket when attending a service, and these costs are not eligible to be used as a tax break.
2. Costs Paid by a Life Insurance Policy
If a life insurance policy, a burial insurance policy, or a final expense insurance policy pays for funeral expenses, then they are considered nondeductible expenses.
3. Fees Paid by Government Programs
Any funeral fees paid by government programs are not allowed on your itemized tax deduction list on Form 706, Schedule J.
This includes, but is not limited to: Social Security payments, Veterans Affairs payments, and payments from final expense insurance policies.
How To Claim Funeral Expenses On Taxes
If you are wondering how to claim funeral expenses that were paid for by your estate, simply complete Schedule J of Form 706, ensuring you itemize all of the expenses to make it clear what each expenditure paid for.
Funerals can cost thousands of dollars on average. Make sure to list out all costs, from embalming, cremation, and burial services to the material costs of caskets, urns, headstones, and even the costs of catering services, decedent’s transportation costs, flowers, funeral director fees, and the fees from the minister, rabbi, or religious leader.
Keep all of the receipts of these expenses, as you will need the exact amount spent on each item for your estate taxes. Receipts will also make it easier if you are audited.
Remember that if any expenses were reimbursed to the estate by insurance, VA payments, or Social Security payments, that reimbursement amount must be subtracted from the total tax deductions.
Making Tax Preparation Simple with FreshBooks
Arranging a funeral can be an emotional task, but luckily FreshBooks accounting software can be useful for more than small business accounting.
It can also help you stay organized, and keep track of all of the funeral and burial expenses. Tax deductible items will be categorized for you, making them easy to find later on, so you don’t have to worry about your finances during this difficult and stressful time.
Sign up to try FreshBooks free to see how easy it is to track every eligible deduction. If you want further tax advice, or if you want to know more about what makes funeral expenses tax deductible before doing your federal taxes, consider speaking to a tax professional.
FAQs About Funeral Expenses Tax Deductible
Planning a funeral can be stressful, and you likely have many questions. We hope that the following frequently asked questions and answers will help get you started.
Are prepaid funeral expenses tax deductible?
No, unfortunately, individual taxpayers cannot deduct funeral expenses from their federal income taxes. Pre-paid funeral costs are an investment in the future, and can certainly help your loved ones during their time of grieving, but it cannot be used as a tax benefit.
Is donating for a funeral a tax write-off?
No, donating for funeral expenses cannot be used as a tax write-off. For a charitable contribution to be considered tax-deductible, the recipient has to be a qualified organization, per the IRS. FreshBooks software can help you organize your charitable donations, so you are ready for tax season.
Can I deduct funeral expenses on Form 1041?
No, funeral costs can only be deducted using the estate tax return, on Schedule J of Form 706. Form 1041 is used when estates pay tax on capital gains, dividends, interest income, farm income, business income, royalties, and wages paid to the decedent’s estate for work they did while living.
Are hospice expenses tax deductible?
Yes, many medical costs are tax deductible, like medical supplies and equipment, prescription medications, doctor and nurse fees, caregiver fees, and the other necessary costs of hospice care. Use FreshBooks to keep track of all deductible medical expenses, so you are ready for tax season.
What are the pros and cons of a prepaid funeral?
Prepaying your funeral costs can reduce the stress on your loved ones after your passing, and you can arrange for the funeral to honor your wishes. Some cons include unexpected fees due to inflation, funeral scams that cost your loved ones more, and non-transferrable plans that can cause problems in the future.
Can you deduct medical expenses paid after death?
Yes, if you paid medical expenses for a spouse or dependent, you can itemize these costs on Schedule A on Form 1040, even if they were paid after the person passed away. Using accounting software like FreshBooks to track medical receipts can make sure you don’t miss out on any tax breaks in the future.
About the author
Sandra Habiger is a Certified Public Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Learn more about her work at http://www.sixfiguresaccounting.com/ .