Allocating items to beneficiaries (1041)

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Use the following information to allocate income net of deductions, credits, and other items of the estate or trust to the beneficiaries. Income may be allocated using amounts, percentages, or a combination of both. Grantor trusts and agency relationships can use only the percentage fields. For estates and non-grantor trusts where both amounts and percentages are entered, amounts are allocated first and then the percentages are applied to the remaining unallocated income. For simple trusts, grantor trusts, and agency relationships, percentages entered in each category must total 100. Credits and other items can be allocated using only percentages.

  1. Enter income and deductions on the applicable input screens.
  2. Choose View > Beneficiary Information.
  3. In the Beneficiary tab, enter the beneficiary name, address, and identification number.
  4. Choose Beneficiary > Add to enter additional beneficiaries.
  5. Use the following procedures to set up allocation items to the beneficiaries.

    If this is a simple trust, grantor trust, agency relationship, or final return, no additional entry is necessary, the default is equal allocation.

    1. Click the Allocation folder, and then click the Allocate tab.
    2. Enter X in the First tier beneficiaries: Allocate all items, except capital gains, equally field. If capital gains should also be allocated equally, enter X in the First tier beneficiaries: Allocate capital gains equally field.

    Note: If this is a complex trust or decedent's estate and not a final return, no additional entry is necessary, the default is no allocation.

    If this is not a final return and there is a default allocation, do the following:

    1. Click the Allocation folder, and then click the Dist tab.
    2. Enter 0 (zero) in the Income required to be distributed (Force) field.

    If this is a final return, do the following:

    1. Click the Allocation folder.
    2. In the Beneficiary Allocation Options section, enter X in the Allocate no income or excess deductions to beneficiaries on final return field.

    Note: If there is no allocation, the text "NO TAXABLE INCOME" prints on a Schedule K-1 for each beneficiary unless the Schedule K-1 is suppressed in View > Beneficiary Information.

    1. Choose View > Beneficiary Information, and then select the first beneficiary.
    2. In the Allocations group box in the Federal tab, enter a percentage in the Percent column using the Income distributions field, or click the Special Allocations button and enter percentages in the Percent column next to the applicable income type.
    3. Select the next beneficiary.
    4. Repeat the above steps for additional beneficiaries.

    Notes

    • If the total percentages entered are greater than 100 for an income type, a diagnostic message prints indicating that the allocation for the income type is equal, proportionate, or not allocated based on the return type.
    • If an income type (for example, interest) is allocated differently from income distributions, it is completely removed from the income allocation. That income must be specially allocated for all of the beneficiaries that receive distributions of that specific income type.
    1. Choose View > Beneficiary Information, and then select the first beneficiary.
    2. In the Allocations group box in the Federal tab, enter an amount in the Amount column of the Income distributions field, or click the Special Allocations button and enter amounts in the Amount column next to the applicable income type.
    3. Select the next beneficiary.
    4. Repeat the above steps for additional beneficiaries.

    Notes

    • If the sum of the amounts entered in the Federal tab in the Income distributions field for all beneficiaries exceeds the total distributable amount available, each beneficiary will receive a proportional allocation of the amount pro-rated among the income types.
    • If the sum of the amounts for any income type entered in the Special Allocations button for all beneficiaries exceeds the net amount available for that income type, that amount allocates and then rounds down to the total amount available in all income categories. This rounding may cause unexpected amounts to print for all income types on Schedule K-1. (See the Allocation of Expenses by Income Type Worksheets to determine the net amounts available.)
    1. Choose View > Beneficiary Information, and then select the deceased beneficiary.
    2. Click the Special Allocations button in the Federal tab, and enter specific amounts of interest, rental, or capital gain that should be allocated to the deceased beneficiary. Do not enter net income amounts in excess of the amounts available for allocation. (See the Allocation of Expenses by Income Type Worksheets to determine the net amounts available.)
    3. Select a beneficiary in the Beneficiary Name list.
    4. Click the Special Allocations button in the Federal tab, and enter specific percents on the same income type lines that were allocated to the deceased beneficiary (such as interest and rental).
    5. For the additional beneficiaries, repeat steps 3 and 4.

    Note: When you allocate by amount, do not enter more than the net income available for each income type. If a greater amount is entered than is available, that amount allocates and then rounds down to the total amount available in all income categories, which may cause unexpected amounts to print on Schedule K-1.

    1. Click the Allocation folder, and then click the Allocate tab.
    2. If this is not a final return, enter X in the Allocate capital losses to beneficiaries on non-final return field in the Beneficiary Allocation Options section. If this is a final return, this step is not required.
    3. Choose View > Beneficiary Information, and then click the Federal tab for the first beneficiary who will receive an allocation.
    4. In the Allocations group box, enter percentages in the Short-term capital gains and Long-term capital gains fields to allocate the capital losses.

    Notes

    • You cannot use amounts to allocate capital losses.
    • Per IRS instructions, capital losses are reported as positive amounts on Schedule K-1, Box 11 and not as negative amounts on Box 3 or 4.

Related topic: Beneficiary Information > Federal tab

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