Common questions about K-1s and distributions from a trust in ProConnect Tax

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This article will help you understand and use Schedule K-1 allocation options in an estate or trust return, Form 1041. Deductions and credits can be maintained in the fiduciary, or allocated to beneficiaries. Additionally, deductions from distributable net income (DNI) can be allocated using the tier method or the pro-rata method.

Changing the K-1 Distribution options:

1. Go to the Input Return tab.
2. On the left-side menu, select Beneficiary/Grantor Info.
3. Select on Schedule K-1 Distribution Options.
4. Enter the desired options:
   • TAI distribution limitation: 1=yes, 2=no [Override]
   • Include capital losses in capital gains distributed: 1=carryovers only, 2=none, 3=losses to extent of gains [Override]
   • Depreciation: 1=in fiduciary, 2=prorate to beneficiary [Override]
   • Depletion: 1=in fiduciary, 2=prorate to beneficiary [Override]
   • Credits: 1=in fiduciary, 2=prorate to beneficiary [Override]
   • Prorate estate tax deduction to beneficiaries based on income %

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Changing the DNI Allocation of deductions:

1. Go to the Input Return tab.
2. On the left-side menu, select Sch. K-1.
3. Select on Deduction Allocation for DNI.
4. Enter a 1 or 2 in Automatic allocation: 1=tier, 2=pro-rata [Override].

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Capital losses do not appear on the K-1s for the beneficiaries

Capital losses will not appear on the K-1s until the final year. This is based on the 1041 instructions which indicate not to report a negative amount on the K-1.

In the trust's final year, any remaining capital loss carryover will be distributed in Box 11 of the K-1 as a final year deduction.

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How do I enter beneficiaries?

1. Go to the Input Return tab.
2. On the left-side menu, select Beneficiary/Grantor Info.
3. Select on Beneficiary/Grantor Information.
4. Enter the applicable information in the Name, Address, Identification Number, Date of Birth section.
5. Scroll down to enter any state information that applies.
6. Select the plus sign (+) near the top of your input screen to add another beneficiary, as needed.

Once you've entered all of the beneficiaries, you're ready to enter Distribution Percentages or Dollar Distributions on the appropriate screen. Both screens contain two sections: Required (Schedule B, line 9) and Other (Schedule B, line 10). These sections correspond with the lines on Form 1041, page 2, Schedule B. Each section contains three paired fields: Ordinary, Short-term, and Long-term. If you're not sure which distribution amounts should go to line 9, and which should go to line 10, review the Form 1041 Instructions for guidance.

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How do you enter distribution percentages for beneficiaries?

1. On the left-side menu, select Distribution Percentages.
2. Enter the appropriate percentages for each beneficiary.

The percentages in any one pair should total no more than 100%. If you enter 100.00 in the Required section, in the Ordinary field, and enter 100.00 in the Other section, in the Ordinary field, you will distribute 200% of ordinary income to the beneficiary. Don't enter a percentage for any beneficiary for whom a dollar amount is entered on the Dollar Distributions screen in a like field.

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How can you distribute specific amounts to beneficiaries?

1. On the left-side menu, select Dollar Distributions.
2. Enter the dollar amounts for each beneficiary, as applicable.

For any one beneficiary, you may not enter a dollar amount in a like field for which you entered a percentage on the Distribution Percentages screen. In other words, do not enter both a dollar amount and a percentage in the required ordinary field for any one beneficiary. You may, however, enter an ordinary percentage for the first beneficiary and an ordinary dollar amount for the second beneficiary, using the respective screens.

Tip: Click the hamburger (☰) near the top of your input screen to switch to the Quick Entry grid for faster data entry.

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How is the distribution deduction on Schedule B calculated?

ProConnect Tax automatically calculates Schedule B Income Distribution Deduction by determining the distributable net income. Once the distributable net income has been derived the  Income distribution deduction is calculated. The income distribution deduction can be overridden by following the steps below:

1. In the Input Return tab, go to Beneficiary/Grantor Info
2. Select Schedule B Overrides
3. Under Income Distribution Deduction use the input field for Income distribution deduction [Override].

Note: This input changes 1041, page 2, Schedule B, line 15, Income distribution deduction.

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