After a client loses a spouse, changes in income, filing status, investment ownership, and Medicare premiums can create overlapping tax planning questions for the surviving spouse. Coordinating financial decisions with the client's CPA throughout the year can help bring those questions into focus before the return is prepared.
Consider a hypothetical client we’ll call Sandy, whose circumstances illustrate issues that can arise after a spouse’s death.
After decades of marriage, her husband had handled many of the household’s financial responsibilities. Following his death, she needed help organizing her finances and evaluating the decisions ahead.
They had done well. They lived modestly, accumulated a sizable portfolio, and held investments and cash that generated taxable income.
One thing Sandy hadn't anticipated was how much her tax situation could change after her husband's death.
It reminded me why we value working closely with our clients' CPAs, especially after losing a spouse.
Because we're involved in financial decisions throughout the year, we often have the opportunity to anticipate issues, gather information, and coordinate with the CPA well before tax season.
Here are five areas we're watching.
A surviving spouse can generally file jointly for the year of death if eligible and not remarried. Afterward, filing status depends on the circumstances. Qualifying surviving spouse status may apply for two years if the dependent child and other requirements are met. Many older survivors eventually file as single taxpayers.
For clients moving to single filing status, lower household income does not necessarily translate into a proportionally lower tax bill.
Rather than discovering the impact when the return is prepared, we can model the client's expected income in advance, including:
Then we can coordinate with the CPA on what the new tax landscape may look like and which upcoming decisions warrant closer review. Keep in mind, any projections are estimates based on information and assumptions available at the time and are intended to support financial-planning discussions. The client’s CPA should determine the applicable tax treatment and provide tax advice.
When both spouses receive Social Security, and one dies, the survivor generally does not continue receiving both payments. The survivor's benefit depends on eligibility and claiming circumstances; the survivor's own retirement benefit and survivor benefit are not combined.
That can leave the household with less income.
It's one reason we think it's important to model the client's new financial life, not just the change in Social Security.
The questions may include:
These are financial planning decisions with tax consequences.
We can help evaluate how they align with the client's broader goals while the CPA assesses their tax implications. Bringing those perspectives together before a transaction or year-end decision gives everyone more time to weigh the trade-offs.
This is a small example of how planning can make a big practical difference.
If a newly widowed client needs to pay more in taxes, quarterly estimated payments may be an appropriate solution.
But if the late spouse always handled the finances, adding another set of deadlines may be the last thing the client needs.
Depending on the income source and applicable rules, adjusting federal withholding on IRA distributions, pensions, or annuities may help simplify payments. The CPA can evaluate the amount and timing needed, as well as any remaining estimated payment obligations.
Social Security recipients can also request voluntary federal income tax withholding using Form W-4V.
Our role can include helping the client organize income information and implement the agreed-upon withholding changes.
The goal isn't always to find the cleverest tax strategy. Sometimes good planning simply means making the client's financial life easier.
A spouse's death may change the cost basis used to calculate gain or loss on inherited taxable investments. The adjustment can be upward or downward (often called a step-up or step-down in basis), and ownership and applicable rules determine how much of an asset is affected.
For example, an investment purchased for $100,000 and worth $300,000 at death may receive an adjustment to some or all of its value, depending on the circumstances. This example concerns a taxable account; inherited IRAs follow different rules.
But someone needs to ensure the records reflect the appropriate treatment.
This is an area where we can help. We can identify accounts and holdings, help obtain valuation records, coordinate with the CPA on the applicable treatment, and work with custodians to update their records.
When ownership, trusts, or estate administration raise legal questions, the client's attorney may also need to be part of the conversation.
Ideally, when the return is being prepared, we're not just starting the conversation about basis.
We've already helped gather the information.
And then there's IRMAA, the income-related monthly adjustment amount.
For Medicare beneficiaries, this surcharge can add to Part B and Part D premiums when income exceeds the applicable thresholds. Those thresholds vary by filing status, and Social Security generally uses tax information from two years earlier to make the determination.
That timing can make a premium notice confusing for someone whose financial circumstances have changed recently.
Fortunately, Social Security recognizes a spouse's death as a life-changing event. If income has declined, the survivor may be able to request a new determination using Form SSA-44.
A reduction is not automatic. Social Security reviews the request and supporting information.
This is exactly the kind of issue we can identify more easily when we work together.
The CPA brings the tax perspective. We provide information on Medicare premiums, investment accounts, cash flow, Social Security, and upcoming financial decisions.
Together, we can help determine whether the premium notice warrants further review and help the client organize the necessary information.
When Sandy first came to us, she wasn't asking for tax strategies.
She was essentially asking, "Am I going to be okay, and what do I need to do next?"
Answering that question required looking at much more than her investment portfolio.
It meant understanding her cash flow, Social Security, taxes, investments, Medicare, estate plan, and the administrative details her husband had previously handled.
That's the role we enjoy playing alongside our clients' CPAs.
We help clients anticipate tax issues by planning before the return.
We organize information, model decisions, and bring the CPA into the conversation when we need tax input. When implementation follows, we help coordinate the financial steps and follow through with the client.
For someone adjusting to life after a spouse's death, that collaboration can help make the next financial decision more manageable.
An early conversation can help clarify responsibilities and identify the information to collect. Coordination is also useful before investment sales, distribution changes, or other decisions with tax implications. The timing should reflect the client's immediate needs and readiness, as well as any deadlines the professionals identify.
Depending on the engagement, a financial planner can help assemble account statements, projected income and distributions, withholding information, investment-sale details, and valuation records. Agreeing on what the CPA needs can reduce duplicate requests and make the process easier for the client.
Yes. A spouse's death is a recognized life-changing event. If income has declined, the client may request a new determination from Social Security. Eligibility for a reduction depends on the circumstances and supporting information; the event alone does not guarantee a lower surcharge.
If you work with a client who has recently lost a spouse, Spaugh Dameron Tenny can help organize financial information, model cash flow, and coordinate financial planning decisions with you and the client's other professionals.
Contact us to discuss how we can support the client as you continue to lead their tax work.
For an additional client resource, explore our surviving-spouse financial roadmap, "When a Loved One Passes: A Financial Roadmap for the Years Ahead."
This material is provided for general informational purposes only and is not intended as individualized tax, legal, Social Security, Medicare, or investment advice. Tax and legal rules are complex, subject to change, and dependent on individual circumstances. Clients should consult their tax professional, attorney, or applicable government agency regarding their specific situation. Any examples or projections are hypothetical, simplified, and based on assumptions that may not apply to a particular individual.
CRN202910-12254426
Shane Tenny, CFP®, is Managing Partner of Spaugh Dameron Tenny, where he helps high-net-worth individuals and families navigate complex financial decisions with clarity, structure, and confidence. Since joining the firm in 2000, Shane has worked with clients through major financial transitions, including career changes, liquidity events, retirement, and multigenerational planning. His approach combines comprehensive financial planning with a focus on behavioral finance, including advanced studies in Behavioral Economics through the University of Chicago Booth School of Business. Shane is the author of Your Next Million, former host of the Prosperous Doc® Podcast, and a nationally recognized financial advisor, speaker, and educator.
/Logo%20Horizontal%20(4).png?width=2000&name=Logo%20Horizontal%20(4).png)