Common questions about entering items into a 1041 in ProConnect Tax

Entering distributions from a 1065 K-1

ProConnect Tax does not have a specific input field for amounts reported on a partnership K-1, line 19, distributions, in the fiduciary (1041) module. This amount is used with basis limitation, which ProConnect Tax does not currently track for fiduciary returns.

Basis amounts, including distributions, should be tracked manually. You can use the Notes button at the top right corner of your input screen to keep track of passthrough basis. Notes will proforma (roll over) from year to year.

Basis Limitation Worksheet:

For your reference, the basis limitation is calculated as:

Adjusted basis at beginning of year
+ Additional amounts invested in current year
- Current year distributions of money/property
+/- Change in partner's share of liabilities
+/- Current year income from partnership
= Adjusted basis used for basis limitation
- Loss allowed by basis limitation
= Adjusted basis at end of year

Entering Estate or Trust K-1 Alternative Minimum Tax Adjustment 12A into a Fiduciary Return

To enter the AMT adjustment from a 1041 Schedule K-1 into a Fiduciary return:

1. Input Return ⮕ Income ⮕ Passthrough K-1's
2. Select the appropriate Activity from the tabs at the top of the screen.
3. Across the top, select Lines 12-20
4. Scroll down to the Alternative Minimum Tax (AMT) Items (17) section
5. Enter the amount in the field Beneficiary's AMT adjustment (1041)(12) (A)

The amount entered will flow to the Schedule I, line 11 and be included in the AMT taxable income computation.

Note:  If the Alternative Minimum Taxable Income (AMTI) is greater than the exemption on Schedule I, page 2, then part of the amount will be taxed at the Fiduciary level, and the other part will pass through to the Beneficiaries via Schedule K-1, Box 12, code A.
If the AMTI is less than the exemption amount on Schedule I, page 2, then no portion will pass through to the Beneficiaries and the alternative minimum tax amount will flow only to the Form 1041, Schedule G.

Entering Charitable Deductions on a Fiduciary Return

To enter charitable deductions:

1. Input Return ⮕ Deductions ⮕ Charitable Deduction
2. Enter the applicable Charitable Payee Information:
   • Payee
   • Payee's address
   • Payee's city, state, and ZIP
   • Select the applicable Category (Ctrl+T)
   • Purpose of donation
   • Description of assets donated (Form 5227 only)
   • Date asset donated (Form 5227 only)
3. Scroll down to the Amount section
4. Enter an amount or a percentage to be paid or set aside from Income and/or Corpus for each category of income:
   • Ordinary, Short-term capital gains
   • Short-term capital gains
   • Long-term capital gains

     Note:  Enter percentages in .xxxx format (50% is entered as .50)

The charitable deduction is only applicable for complex trusts, estates and charitable lead trusts.

Note:  Use Charitable Deduction Overrides or Form 5227, in the section labeled Part VII Questionnaire, Charitable bene. [O] if needed. However, if the return is set to e-file and an override has been entered, ProConnect Tax will generate an e-file critical diagnostic that the return will have to be paper filed if the override is not removed.

How to enter an amount for Form 1041, Line 11

To enter Federal income taxes:

1. Input Return ⮕ Deductions ⮕ Taxes and Fees
2. Scroll down to the Federal Income Tax subsection.
3. Enter the amounts paid in the appropriate fields.

To enter State & Local income taxes:

1. Input Return ⮕ Deductions ⮕ Taxes and Fees
2. Locate the State & Local Income Taxes subsection.
3. Enter the amounts paid in the appropriate fields.

To enter Property and other taxes:

1. Input Return ⮕ Deductions ⮕ Taxes and Fees
2. Enter the appropriate amount in the Taxes section:
   • Property taxes (non-investment)
   • Real property taxes (investment)
   • Other taxes

How to enter tax exempt interest for a 1041 K-1

This article will help you locate where to enter tax-exempt interest to flow to line 14 of the beneficiary's K-1, and understand how those entries affect your return. In ProConnect Tax, tax-exempt interest can be entered in either the Interest Income screen or the Dividend Income screen.

Follow these steps to enter tax-exempt interest in Interest Income:

1. Input Return ⮕ Income ⮕ Interest Income
2. Scroll down to the Tax-Exempt Interest section.
3. Enter the amount of federal tax-exempt interest in Total municipal bonds.

Follow these steps to enter tax-exempt interest in Dividend Income:

1. Input Return ⮕ Income ⮕ Dividend Income
2. Scroll down to the Tax-Exempt Interest section.
3. Enter the amount of federal tax-exempt interest in Total municipal bonds.

How these entries affect the return

• Amounts entered in the above screens will automatically flow to Form 1041, page 2, Other Information, line 1.
• The tax-exempt interest income will flow to the beneficiary K-1, line 14, based on your entries in the Beneficiary/Grantor Info. > Distribution Percentages screen.
• The amount of tax-exempt interest on each K-1 can also be overridden on the Sch K-1 > Federal screen.

Entering investment management fees subject to the 2% of AGI floor

1. Input Return ⮕ Deductions ⮕ Other Deductions
2. Enter "Investment management fees" in the Description of other deduction field.
3. Select option 2 in 2% of AGI (Click on arrow to select from list).
4. Scroll down to the Deduction Amount subsection.
5. Enter the fees in Income, Corpus, or Tax only (whichever applies).