Using TT Business, I am preparing tax forms for a simple trust. In the previous year this was done by a CPA. The previous year had a tax refund which was applied to this year. I reported this income on line 8 in the income section, Income other. I also included this along with estimated tax payments on line 11 of expenses, Taxes.
In reviewing how this was handled last year by the CPA where the trust also had applied a previous years refund, the was a page on the tax returns titled "Expense Allocation by Income Type, where the refund tax expense was allocated against and fully consumed the Income other. How can I accomplish this allocation of expenses in TT. Currently TT is allocating all expenses on a proportion to the income type. This results in very little expense allocated to income other so that unconsumed income other is on the K-1, along with a corresponding (negative) type H amount on line 14. In the previous year done by a CPA both there was no income other or type H reported.
I suggest that you read the Treasury Regulation at the link below, which sets forth the allocation of deductions.
https://www.law.cornell.edu/cfr/text/26/1.652(b)-3
Note that allocations can be made that enter into the computation of DNI (distributable net income). To the extent there are classes of income that do not enter in that computation (such as capital gains that remain with the trust), items of deduction cannot be allocated to those classes of income.
[I do not mean to be offensive, demeaning, or coarse, but if you cannot comprehend the foregoing, you really need to go back to your CPA]
Your comment and the link seem to indicate that I can allocate state income tax into any income class(es). I do not have tax-exempt interest. In TT how is this done?
Can you provide me with an example (or an actual instance) of exactly what you are attempting to do? For example, what class of income?
Note the language in the Reg: deductions.......may be allocated to any item of income (including capital gains) included in computing distributable net income....
For my simple trust. I have a state tax return of $93 as income other. On the expense side I have state income tax of $235 ($93 applied form 2020 refund and $142 in estimated 2021 state tax payments made in 2021.Other income includes several thousands in each of qualified dividend, non-qualified dividends and interest. There were no capital gains being transferred as this is a simple trust. In theTurboTax form "Dist Inc - K-1", Part II, only one dollar of the state refund expense is allocated to the $93 of state income refund which is in column e- non-passive income. The rest is split between interest and non-qualified dividends. I would like to assign $93 of taxes to non-passive income and adjust the remainder of the expenses to split between interest and non-qualified dividends.