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CGCPA, CPA
Category: Tax
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Experience:  over 40 years experience in tax matters
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# Im completing a 1041 form for my uncles estate. He has 10

### Resolved Question:

I'm completing a 1041 form for my uncle's estate. He has 10 beneficiaries (5 are people, 5 are charities) each receiving 10%.

I am claiming 50% of the income earned for the estate as a charitable deduction. Do I still send out K-1 forms to these five charities showing their pro-rata share of the income?

Thank you!
Submitted: 5 years ago.
Category: Tax
Expert:  CGCPA replied 5 years ago.

You should send the charities a K-1 to accomplish 100% accounting for the estate income.

Customer: replied 5 years ago.

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!

Expert:  CGCPA replied 5 years ago.
The charitable contribution amount should be reflected at 10% for each beneficiaries K-1. Any residual income should also be spread at 10% for each beneficiary.
Customer: replied 5 years ago.

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.

Expert:  CGCPA replied 5 years ago.
You need to issue the K-1s to the charities since they are beneficiaries. However, the \$10,000 would be reflected as \$1,000 to each beneficiary (using your example) of which the charities would then receive a payment for their share and the other beneficiaries a payment for theirs. The deduction would not be claimed. Sorry if I confused at first.
Customer: replied 5 years ago.
Makes sense! Thank you very much!
Expert:  CGCPA replied 5 years ago.
You are quite welcome.