A trust computes its income tax liability in much the same way that an individual does and is allowed most of the credits and deductions that an individual is allowed. Similarly, deductions not allowed to individuals are not allowed to trusts. For example, personal living expenses such as food, utilities, recreational expenses, children's education, depreciation of one's personal residence, etc. are not allowed as a trust deduction any more than as an individual deduction. Trusts are also required to prepare a Schedule K-1 for their beneficiaries, showing them the amounts distributed by the trust to them.

If you would like more information on trusts or setting up one, please contact Keith Youngren at www.taxconnections.com/Keith-Youngren-CPA/12274983/United-States/Texas/Austin/profilepage. These amounts must be reported on the beneficiaries' returns.