11838: 1041 - Common Issues

See the following sections for more information about 1041 returns: 

Fiduciary or Beneficiary income

In a 1041 return, income is designated as belonging to either the fiduciary or the beneficiary. Screen WKK1 can be used to allocate or adjust many of the items that flow to the beneficiaries' K1s. For anything to flow to the K-1, it has to have a value on the Wks Sch K-1 first, either through other data entry that flows there or by direct entry on the WKK1 screen. See Related Links below.

Net operating loss

A current-year net operating loss can be carried over by making the election on the NOL screen. Any unused NOL will not flow to a beneficiary's K-1 except in the final year of the return. If it is the final year, make sure the Final return option is checked on screen 1. You may also need to select Election to carry forward ONLY on screen NOL in a final year return so that the loss will be distributed instead of carried back. 

Capital loss

Unused capital losses will flow to a beneficiary's K-1 only in a final year.

Capital gain

By default, Drake allocates net capital gain to the fiduciary, except in the final year. The Distribute NET capital gains check box available on screen 1 can be used to indicate that the net amount of capital gains should be distributed to the beneficiaries in any year. Net capital gains can also be allocated to beneficiaries on screen D2 using lines 17 and 18. Only positive amounts may be entered on lines 17 and 18 per IRS guidelines. See loss guidelines above. 

Exemptions

• Most trusts/estates are eligible for a $100 exemption on line 20. See Related Links below for details on other exemptions allowed for other situations. 
• Disability. If you are not getting the disability amount expected, go to screen 1 and see field help for the option Qualified disability. This exemption is not allowed in the final year. 

K-1s

On a final year K-1:

• Distribution of capital losses flows to line 11, Final Year Deduction, not to lines 3 and 4, Capital Gains.
• Distribution of net operating losses also flows to line 11 on the K-1.
  • Note: in 2020, "Box 11, code A, was revised to read Excess deductions–Section 67(e) expenses and a new Box 11, code B, Excess deductions–Non-miscellaneous itemized deductions was added." Codes are as follows: 
    • A Excess deductions – Section 67(e) expenses.
    • B Excess deductions – Non–miscellaneous itemized deductions.
    • C Short-term capital loss carryover. 
    • D Long-term capital loss carryover.
    • E Net operating loss carryover — regular tax.
    • F Net operating loss carryover — minimum tax.

Full Grantor trusts do not use K-1s. This information is entered on a statement using the GRS screen instead (EF Message 5460). Open the GRS screen from the General tab, or enter GRS in the Enter Screen, State or Search Phrase field on the main data entry screen. A partial grantor type trust would require both K1s and a Grantor statement. 

• Schedules C, E and F in a grantor trust do not flow to the Grantor Schedules. You must enter the amounts on the respective GRS screen(s) directly.
• If the trust is a partial Grantor type trust, you must check the box Grantor on any applicable screens to have those amounts included on the grantor statement.

A 1041 can be a partner in a partnership, a shareholder in a S corporation, or a beneficiary of another fiduciary. Data entry screens for a K1P, K1F, and K1S received by the fiduciary are available on the Income tab.

Basis is not tracked in the 1041 package, so some lines from the K1 received are unable to be entered:

• K1P screen: entry is not available for lines 12, 14, and 19.
• K1S screen: entry is not available for line 11. 

Charitable Remainder Trust

To select that a 1041 should be considered to be a Charitable Remainder Trust for state purposes, go to screen 2 State General Information on the States tab, and select the Charitable Remainder box.