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on the return of the beneficiary who acquires the right to receive the income, or.Upon the death of a taxpayer, a new taxpaying entity-the taxpayer's estate-is born to make sure no taxable income falls through the cracks. Our focus here will be on federal income taxes. Federal estate taxes may be due, and state inheritance taxes could come into play as well. In fact, taxes can further complicate the lives of survivors. When someone dies, the need to deal with federal and state tax issues often continues. Money in traditional IRAs, 401(k)s, 403(b)s, and annuities is taxed to the heir.Only interest on it from the time you become the owner is taxed. Money you inherit is generally not subject to ‌federal income taxes.Earnings after the date of death are taxable to the beneficiary of the account or to the estate. Only income earned between the beginning of the year and the date of death should be reported on the decedents’ final return.Upon the death of a taxpayer, income is taxed either on the taxpayer's final return, on the return of the beneficiary who acquires the right to receive the income, or on the estate's or a trust's income tax return.