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You should send the charities a K-1 to accomplish 100% accounting for the estate income.
So I shouldn't take the charitable deduction on Schedule A, correct? Because if I do, I am reducing the taxable income of the individuals twice - one by taking the income deduction for the charities, and two by sending out K-1's to these same charities with their pro-rata share of the net income (that I just used as a charitable deduction).
On the initial 1041 return, does it make sense that the beneficiaries are only being taxed on the K-1 for the estate's interest & div income? It looks the estate is being taxed for the long term capital gains. Thank you for your help!
Let me make sure I understand what you're saying - let's say the estate is worth $100,00 and we're dividing it between 10 beneficiaries in equal shares. Five of the beneficiaries are charities.
Estate Income generated on the $100,000 corpus was $10,000 for the tax year. To make it simple we'll assume no other expenses.
Are you saying I can take 50% of the $10,000 in income and allocate it as a charitiable deduction on schedule A? So my net income to be distrubuted between the 10 beneficiaries (5 of which are these same charities) would now be $5,000? Each beneficiary, regardless if they are an individual or a charity would get a K-1 showing income of $500. In effect, the charity is getting a reduction in their distributed income reported on the K-1 based on a charitable deduction taken by the estate? Sounds like I'm double dipping - I thought I could either take the Sch A Charitable deduction and not issue K-1's to the charitable beneficiaries, therefore allocating 100% of the income between the 5 individuals, OR not take the Sch A Charitable deduction and equally distribute income between all 10 beneficiaries and issue K-1s.