Form 1041 - Where To Enter Tax Exempt Interest and Dividends
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Tax-exempt interest and/or dividends is accounted for in Form 1041 in detail providing the gross amount received, expenses incurred attributable to the tax-exempt income, and the amount distributed to beneficiaries.
Reporting tax-exempt interest or dividend income
In Tax Processors Plus Desktop, tax-exempt interest and dividend income can be entered from two different menus within Form 1041.
From the Main Menu of the Form 1041 select:
- Income
-
Interest Income
or
Ordinary Dividends - Select New and enter the details.
-or-
- Other Information
-
Tax-Exempt Interest Received by Estate or Trust
or
Tax-Exempt Dividends Received by Estate or Trust- Select New and enter the details.
After exiting either entry menu you'll be taken to an window titled Tax Exempt Expense Allocation. Don't bypass this window - the IRS will be looking for this information in the return. Select New and enter the information as appropriate.
Note: Tax exempt income is not included in Distributable Net Income. Any expenses related to tax-exempt income are not to be included in the trust's operating expenses.
Reporting tax-exempt income on the beneficiary's Schedule K-1
The character of income and expenses do not change when reporting on the beneficiary's Schedule K-1. Tax-exempt interest is distributed to the beneficiary(ies) net of expenses attributable to the tax-exempt income.
To enter the net tax-exempt income in the Schedule K-1, from the Main Menu of the return (Form 1041) select:
- Schedule K-1
- Schedule K-1 Input - Select New or Edit for an existing beneficiary.
- Allocable Share Items
- Other Information
- Tax-Exempt Interest - Enter the net tax-exempt interest.
Tax-exempt interest flows to Schedule K-1 Box 14 Code A.
Note: This article is intended to assist a preparer entering tax-exempt interest into Form 1041 in the Tax Processors Plus Desktop program. It is not intended as tax advice.
Additional Information: