Estate with large Charitable Deduction

[jasdlm]

Estate has about $30,000 income (1/3rd rental, 1/3rd cap gain, 1/3rd Div/Int).  Charitable Contribution were $100,000 per trust (elected to file estate and trust return together), and no specification as to from what type of income.  Estate deductible expenses are $14,000.

I THINK:  Deductions of $14,000 go first against $30,000 income, so no final year deduction pass-through to beneficiaries; charitable contributions, after covering the remaining $16,000 of income, are wasted, and beneficiaries receive k1s that have nothing on them except the distributions they received from the estate (non-taxable) OR beneficiaries receive no k1s as there is no DNI and no pass through for expenses since they come before charitable deductions against income.

Am I thinking about this totally wrong?

[jasdlm]

Bump.  

[jasdlm]

Am I asking a really stupid question, and no one wants to tell me I'm an idiot?  

[BHoffman]

No way.  It's a hard question to answer.  And, I am the queen of dumb questions around here so don't get any ideas

[DANRVAN]

No, as my dad used to say the only stupid question was the one that was never asked.

Per Section 642(c), the charitable contribution is only allowed to the extent of income and as directed by the governing instrument.  So the excess is a distribution of corpus that is deducted on form 706.

I am not sure what your asking about waste.  You could deduct the admin expense of the estate on 706 and take more charitable on the 1041, but I believe it would all wash out the same.

[jasdlm]

Thanks much.  Am I correct that the estate expenses of administration go against income first, so even though I have more than enough charitable deductions to offset the income, I can't pass through the estate expenses?

By waste, I mean that since there is no 706, no one gets the charitable deduction.

Thanks to both of you for your responses.  I was beginning to worry that I was asking something as basic as 'what's a 1040'.  It's that time in the season!

[BHoffman]

I'm still waiting for someone to answer that stupid cash to accrual question.  Pretty sure you just basically subtract accrued expenses from accrued income to get the 481a adjustment.  Broke the pointy part off the top of my head to figure that one out.

[DANRVAN]

22 hours ago, BHoffman said:

I'm still waiting for someone to answer that stupid cash to accrual question.  Pretty sure you just basically subtract accrued expenses from accrued income to get the 481a adjustment.  Broke the pointy part off the top of my head to figure that one out.

Sounds like you are on the right track.  I don't think I saw your question posted. If  beginning A/R was $10,000 and beginning A/P was $6,000, you would have a positive adjustment of $4,000.

Hope that helps.

[BHoffman]

3 hours ago, DANRVAN said:

Sounds like you are on the right track.  I don't think I saw your question posted. If  beginning A/R was $10,000 and beginning A/P was $6,000, you would have a positive adjustment of $4,000.

Hope that helps.

Thanks!  That is the easy part of this tax return.  Small commercial contractor to large (over $10m average revenues) this year (my first year preparing their reviewed financial statements and 1120S tax return).  I don't know why I tried to make that 481 adjustment harder than it is.

The HARD part was switching them to PCM.  The prior preparer reported everything, including long-term contracts, on a straight cash basis.  All of those 2015 contracts were completed in 2016 except one, and they were small and short enough to avoid the lookback.  I am using the cutoff method to account for the unbilled costs going forward.  Oh, and there is a GAAP entry to account for a loss contract that needs to be adjusted to tax.  

I'm just about done with this, but my aching back!!!