Taxable income earned by a trust or estate
is taxable either to the trust or estate or to its beneficiaries but not to both.
The trust or estate is allowed an income distribution deduction for income taxed to
the beneficiaries. Beneficiaries receive Schedule K-1 informing them of
the amount and types of income to include on their individual tax returns.
Income passed through to the beneficiaries retains its original character
(interest, dividends, capital gains, etc.).
The income distribution deduction is the
LESSER of:
• Distributions less tax-exempt income included in distribution, or
• Distributable net income less tax-exempt interest.
