How to enter exempt-interest dividends and more on Form 1041

[jce1978]

Hello,

This is the first time I am submitting Form 1041 for my niece's college education fund. I have two entries on a Form 1099-DIV for this trust that I don't know how/where to input them on Form 1041 or one of its subforms. The two entries I am referring to are Box 12, Exempt-interest dividends, and Box 13, Specified private activity bond interest dividends. I live in Colorado, and all the exempt-interest dividends earned are from a Colorado municipal bond fund. Therefore all the income in Box 12 and 13 is exempt from federal, state, and local taxes. I just can't find where I report this on Form 1041. Thanks in advance.

[tagteam]

Are you using TurboTax Business?

Using Forms Mode open your Interest and Dividend Income Worksheet and enter the figures as shown in the screenshot below.

[jce1978]

Thanks, but I am not using TT Business. I am filling out a paper form because this year's trust return is very basic.

[tagteam]

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@jce1978 wrote:

Thanks, but I am not using TT Business. I am filling out a paper form because this year's trust return is very basic.

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Your tax-exempt dividends would be entered on page 3, Line 1 of Form 1041 in the Other Information section.

The private activity bond figure (Box 13) would be entered on Schedule I and then flow through to the beneficiary on Line 12 (A code) as an AMT adjustment on the K-1 (if a distribution is being made).

[jce1978]

Thank you, tagteam. Your answer for Box 12 is just what I needed.

Regarding Box 13, what line do I enter this number on Schedule I?

You also responded, "and then flow through to the beneficiary on Line 12 (A code) as an AMT adjustment on the K-1 (if a distribution is being made)."

On what form is Line 12 (A code). Also, we made no distributions in 2022 so therefore did not receive a K-1 from our brokerage firm. I'm not sure that we have an AMT adjustment. Sorry, but this is all new to me although I have been filing family tax returns for 30+ years.

[tagteam]

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@jce1978 wrote:

....Sorry, but this is all new to me although I have been filing family tax returns for 30+ years.

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I understand, but that is why I almost wrote "there is no such things as a basic trust return"; they get complicated very quickly and are nothing like a1040.

Line 12A is on the K-1 and you do not receive the K-1 (1041) from your brokerage firm, that form is prepared if you make a distribution and filed along with the 1041 with a copy to the beneficiary.

Re Schedule I, the instructions are at the link below.

https://www.irs.gov/pub/irs-pdf/i1041si.pdf

[jce1978]

Thanks for your honesty about "there is no such things as a basic trust return." I am learning that quickly! We are making progress, but I did comment that we made no distributions, so does that mean I don't need to create a K-1?

So back to my basic question: I have found a "home" for all other income shown on the two 1099s I received (one from a brokerage and one from a Colorado municipal bond fund). Because I made no distributions, could you please walk me through exactly where to place the values reported in boxes 12 and 13 on one of the 1099s? Many thanks.

[tagteam]

You do not have to create or issue a K-1 if there are no distributions of income or gain attributable to the beneficiary (i.e., the trust will pass nothing through to the beneficiary).

Your interest from PAB activity is entered on Line 7 of Schedule I and the tax exempt interest input was explained earlier.

You really should consider using tax software because the error-rate for manually prepared 1041s is certainly very high (although the audit rate is very low).

Regardless, note that it is likely you will also have to prepare and file a CO return for the trust so that will add another layer of complexity.

See https://tax.colorado.gov/estates-trusts

[jce1978]

Thanks, tagteam. I found some H&R Block business software that is reasonably priced. I will be filing returns for this estate trust for several years, so I agree that I should just get the software, which should lead me through the proper steps. If I get stuck using the software (doubtful), I'll come back to this thread and bug you.😉 Thanks again for your input.