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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
What methods are available for allocating indirect expenses?
Answer
The following two methods are available for allocating indirect expenses among all income types.
- The gross method is the default. Before the direct expenses reduce gross income on Schedule C, E, and F, UltraTax CS will allocate the indirect expenses. If you use this method, you'll get a greater deduction for indirect expenses on Form 1041 than the net method because less expense will be allocated to tax-exempt income.
- The net method will reduce the gross income with direct expenses, and then with indirect expenses. To use the net method, enter X in the Use net rather than gross method for allocating expenses field in Screen Allocate.
Example
Let's say your client gives you the following information.
Income/expenses/fees | Total |
---|---|
Rents | $10,000 |
Direct expenses | $6,000 |
Tax-exempt income | $1,000 |
Indirect fiduciary fees | $500 |
Here's the outcome of each method.
- Gross method: $455 of the fiduciary fees will show on Form 1041, line 12 (500 x 10,000) / (10,000 + 1,000)
- Net method: $400 of fiduciary fees will show on Form 1041, line 12 (500 x 4,000) / (4,000 + 1,000)
Related topic: 1041-US: Expense allocations (FAQs)
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