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The following worksheets are available in the Expenses folder in Forms view. To access the Expense folder, right-click and choose Switch to Form, and then click the Expenses folder to the left. 

Allocation of Expenses by Income Type – Tax Basis

• Net income amounts calculated on a tax basis are used to determine the character of income reported to the beneficiaries on Schedule K-1.
• The expenses are allocated to the available income categories using the gross method. Enter X in the Use net rather than gross method for allocating expenses field on Screen Allocate in the Allocations folder to change the default.
• Any income category (except tax-exempt) may be excluded from the allocation of indirect expense by entering X in the category fields in the Exclude Indirect Expense section on Screen Allocate in the Allocations folder. If an income category is excluded, it is excluded for both the Tax Basis and Accounting Income Basis Worksheets.
• Any net income amount may be forced by using the fields in the Net Income by Type section on Screen Allocate in the Allocations folder. If an amount is forced, it is forced for both the Tax Basis and Accounting Income Basis Worksheets.

Allocation of Expenses by Income Type – Accounting Income Basis

• Net income amounts calculated on an accounting income basis are used for required distributions. That allocation is reported on Form 1041, Page 2, Schedule B, line 9.
• Any income category (except tax-exempt) may be excluded from the allocation of indirect expense by entering X in the category fields in the Exclude Indirect Expense section on Screen Allocate in the Allocations folder. If an income category is excluded, it is excluded for both the Tax Basis and Accounting Income Basis Worksheets.
• Any net income amount may be forced by using the fields in the Net Income by Type section on Screen Allocate in the Allocations folder. If an amount is forced, it is forced for both the Tax Basis and Accounting Income Basis Worksheets.

Partnership / S Corporation Worksheet

• This worksheet is prepared for each partnership or S corporation activity in the K1 1065, 1120S input screen folder.
• Accounting income: Income reported on a 1065 or 1120S Schedule K-1 is only considered for the tax basis allocation of expenses. The actual distributions received from those Schedule K-1s (entered on Screen K1-3) is considered for the accounting income basis of allocation of expenses unless the Include income reported… field is marked on Screen Dist in the Allocation folder. The accounting income line on the worksheet shows how the distributions were spread across the various income categories. Distributions in excess of income received is listed in the Ordinary Business column. The amounts on this line carry to the Income line on the Allocation of Expenses by Income Type – Accounting Income Basis Worksheet.
• Portfolio income: This line of the worksheet summarizes the portfolio income of the activity.
• Other deductions: Other deductions reported on Schedule K-1 lines 13L (1065) or 12L (1120S) are only allocable against the portfolio income categories of that activity. To change the allocation, enter the other deductions on Screen Deduct in the Deductions folder instead of on Screen K1-2 for the activity. These allocated amounts carry to the Other deductions line on the Allocation of Expenses by Income Type – Tax Basis Worksheet.
• Allowable charitable deduction: The charitable deduction for an activity cannot be reported on the return in excess of the income from the activity. This portion of the worksheet shows the limitation if applicable. The allowed portion carries to Form 1041, Page 2, Schedule A.

Allocation of Deductions for Tax-Exempt Income Worksheets

• The form instructions indicate that a reasonable portion of expenses be allocated against tax-exempt income. This worksheet shows the expenses entered for the return (direct and indirect) and the calculation of indirect expenses to tax-exempt income.
• The Income column amounts are reported on the Allocation of Expenses by Income Type – Accounting Income Basis Worksheet.
• The total column amounts are reported on the Allocation of Expenses by Income Type – Tax Basis Worksheet.
• Capital gains are included in the allocation of expenses to the extend they are allocated to beneficiaries. Use the Net capital gains for tax-exempt income allocation (Force) field on Screen Allocate in the Allocations folder to include a different amount.
• As a default, tax expense is not indirectly allocated to tax-exempt income. Use the Allocate indirect tax expense to all income types field on Screen Allocate in the Allocation folder to change the calculation.

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