Common Questions about Allocations for K-1s in Lacerte

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How to Allocate State Income From A Pass-through K-1 on A Business Return

Business returns and Individual use different rules for state income allocation.

Individual returns typically use allocation:

• Specific amounts are allocated directly to the state
• Most input fields have a State indicator
• State Source fields are present to indicate specific amounts from those state sources

Business state returns typically use apportionment:

• State amounts are determined by a percentage calculation
• Most common factors used are the Sales, Property, and Payroll amounts for business
  • Some states refer to the percentage as an "business allocation percentage", but it is calculated based on the Sales, Property, or Payroll amounts, not direct allocation.
  • Income such as K-1s the business received are not generally included as part of these factors, and do no impact the apportionment calculation
• Fields that are used by the calculation, such as Gross Recepits, can be directly allocated to the state
• Most fields will not allow a State Source amount, as that is not how the state return calculates.
• State, if Different fields exist, but only when there could be a difference due to state law, not sourcing.

The pass-through K-1 input screens for a business return will allow direct state allocation when allowed by the state. The K-1 input will also allow inputs to be assigned to some apportionment states when applicable. When automatic apportionment is enabled, those states will attempt to use the amounts in those fields to automatically populate that state's apportionment schedule. It's recommended that you review each state's apportionment schedule for accuracy.

• Apportionment is usually calculated by averaging the Sales Factor, Payroll Factor and Property Factor, though each state does it a little differently.
• The apportionment percentage that is calculated for each state is then applied on that state's return.
• State income/losses can be adjusted on the State & Local specific input screens.

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Allocating Shareholder K-1 Amounts When One Shareholder Gets Zero Income and Deductions

Lacerte calculates each shareholder's ownership percentage and K-1 amounts by dividing each member's Number of shares owned at year end by the total number of shares owned for all shareholders, as entered in Screen 6, Stock Ownership.

To zero out a shareholder's portion of income and deductions without removing their percentage of ownership:

1. Go to Screen 6, Stock Ownership.
2. Enter Percentage of stock owned at year end [O] for all shareholders. Make sure the total equals 100.
3. Enter K-1 allocation percentage [O] for all shareholders except the one that needs to be zero. Make sure the total equals 100.
4. Go to Screen 33, Schedule K-1 Overrides.
5. Select the Shareholder who needs to be zero'ed out.
6. Enter -1 in the fields you need to zero out on their K-1.
7. Go to the Forms tab and make sure the K-1s show as expected

Note:  You will get a critical diagnostic stating that the ownership allocation does not equal 100%.  This diagnostic is generating correctly but will not prevent you from electronically filing the return.

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