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Single beneficiary Irrevocable Trust, Form 1041 - allocation of dividend income to beneficiary

Level 2

I am having difficulties getting credit on the 1041 for dividend income distributed to the sole beneficiary.

On the K-1 Beneficiary's Allocation Smart Worksheet A 1 and 2 are both set at 100% allocation to the beneficiary. If I enter the allocable share of dividends distributed to the client on the "Amounts to Allocate to Schedules K-1 Worksheet" they flow through to the K-1 however the 1041 does not show a corresponding reduction in income taxable to the trust.

Form 1041 line 2b shows the full amount of qualified dividends as allocable to the estate or trust rather than beneficiaries. The result is reporting the same dividends as taxable income to both the trust and the beneficiary. 

Would appreciate input to solve this, thank you.

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2 Comments 2
Level 15

Have you entered an amount on Page 2, Schedule B, Lines 9 and/or 10?

Level 2

Nothing is feeding over to lines 9 or 10. There is a capital gain (line 6) in excess of the adjusted total income (which includes the dividends), which appears to be blocking the dividends from being distributable net income on line 7. Logically I don't understand why the existence of a capital gain by the trust impacts the deductibility of dividends actually paid out to the beneficiary. 

On the K-1 worksheet, Beneficiary's Allocation Smart Worksheet I originally entered 100% as Income distribution deduction, which the program says is an alternative to entering the dollar amount. If I enter the dollar also (with or without the 100% required by the program despite the "or" instruction) the 1041 2a allocation of qualified dividends to the estate rather than beneficiary does not change & the full amount (interest, dividends & capital gain) appear on line 9, Total Income.

I can probably force the amount distributed on lines 13 & 14 of the "Distributable Income for Schedule(s) K-1 and hope that feeds through to 1041 Line 10 to fix it, but not without lots of error messages resulting that shouldn't be necessary to my way of thinking.

Appreciate your input. The taxes involved are not large, it just shouldn't be taxed twice to my mind.

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