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Fixed Assets and UltraTax CS 2023 help is now on Help and Support. We're still moving articles, but you can find most content for the 2023 tax year there. Continue using the Help & How-To Center for tax years 2022 and older.

Question

How are expenses allocated to tax-exempt income?

Answer

Both direct and indirect expenses can be allocated to tax-exempt income.

Indirect allocation - There are two options to indirectly allocate expenses, other than tax expense. You can enter expenses directly on Screen Deduct in the Deductions folder without using the statement dialog for the applicable expense. Or, you can enter the expense amount in the statement dialog for the applicable expense and leave the Income Type field blank to indirectly allocate the expense to all income types. Either method allocates the expense to tax-exempt income in the same ratio as tax-exempt income relates to gross income.

Direct allocation - To directly allocate expenses to tax-exempt income, you must enter the data in the statement dialogs for the expense fields on Screen Deduct in the Deductions folder. In the Income Type field in the statement dialog, enter code TE to directly allocate the expense to tax-exempt income.

To allocate indirect tax expenses to tax-exempt income, enter X in the Allocate indirect tax expense to all income types field on Screen Allocate in the Allocation folder.

Related topic: 1041-US: Expense allocations FAQs

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