Kentucky Kentucky Fiduciary Income Tax Return Instructions

Kentucky Fiduciary Income Tax Return Instructions
Form 741 Instructions
INSTRUCTIONS

741

INSTRUCTIONS—FORM 741
KENTUCKY FIDUCIARY INCOME TAX RETURN

2023

Commonwealth of Kentucky
Department of Revenue

WHO MUST FILE
A return must be filed by the following:
•	

Every resident estate with gross income for the taxable year
of $1,200 or more; and every resident trust with gross income
for the taxable year of $100 or more.

•	

Every nonresident estate with gross income for the taxable
year from Kentucky sources of $1,200 or more; and every
nonresident trust with gross income for the taxable year from
Kentucky sources of $100 or more.

on Schedule M, Part I, line 3 and identify the income as “ESBT
– S corporation income.” A separate schedule must be attached
to the return to show the income and deductions applicable to
S corporation portion of the ESBT. When computing income
of the S corporation portion of the ESBT, the following must be
considered: (1) Capital losses are allowed in computing income
only to the extent of capital gains; (2) Passive losses and ordinary
losses are deductible only against passive income and ordinary
income, respectively; (3) No deduction is allowed for amounts
distributed to beneficiaries; and (4) No additional deductions are
allowed for state taxes.

WHEN AND WHERE TO FILE

LINE-BY-LINE INSTRUCTIONS

Taxpayers must file by the 15th day of the 4th month following the
close of the tax year. Mail the return to:

Line 1—Enter the amount shown as federal adjusted total income
from federal Form 1041, line 17. Enclose a complete copy of
the federal return.

		
		

Kentucky Department of Revenue
Frankfort, KY 40620-0016

FIDUCIARY INCOME
Kentucky income tax law is based on the federal income tax law
in effect on December 31, 2022. The Department of Revenue
generally follows the administrative regulations and rulings of
the Internal Revenue Service in those areas where no specific
Kentucky law exists. Kentucky law requires taxpayers to report
income on the same calendar or fiscal year and to use the
same methods of accounting as required for federal income tax
purposes. Effective for taxable years ending after September 10,
2001, a fiduciary that for federal income tax purposes elects to use
the 30 percent or the 50 percent special depreciation allowance
will have a depreciation difference for Kentucky purposes. See
Form 740 and Schedule M instructions or contact the Department
of Revenue for more information.
ADMINISTRATION EXPENSES
In the case of a decedent’s estate, if the election was made not to
deduct costs of administration, including attorney’s fees actually
allowed and paid, on a Kentucky inheritance tax return, these
expenses may be deducted on Form 741. A statement waiving
the right to deduct these expenses for inheritance tax purposes
must also be filed with Form 741.
If the same administration expenses that were claimed on the
Kentucky Inheritance Tax Return, Form 92A200 or Form 92A205,
are also claimed on the federal fiduciary income tax return, Form
1041, an adjustment must be made to add these expenses to
the Kentucky adjusted total income on the Kentucky Form 741,
Schedule M, line 3.
ELECTING SMALL BUSINESS TRUST (ESBT)
An ESBT must report income, losses, and deductions allocated
to the ESBT as an S corporation shareholder and the gain and
loss from the disposition of S corporation stock on the Kentucky
fiduciary return, and pay income tax accordingly. All S corporation
income is reported on the return as regular income and is taxed at
the same rates as all other income. Enter the S corporation income
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Line 3—Enter the portion of deductions that are allocated to the
additional Kentucky income reported on line 2. These deductions
are in addition to the deductions claimed on your federal Form
1041.
Line 7—Enter the portion of deductions on federal Form 1041
allocable to Kentucky tax-exempt income reported on line 6.
To compute unallowable deductions, divide the Kentucky tax
exempt income by the entire income of the fiduciary. Multiply total
deductions by this percentage. Report the amount of unallowable
deductions on line 7.
Line 10, Beneficiaries’ Shares of Income and Deductions—
Income distribution deduction. Enter amount.
Each beneficiary’s share of income, deductions, credits, etc.,
must be reported on a separate Schedule K-1 and filed with
Form 741. A copy must be given to the beneficiary and a copy
retained by the fiduciary.
The income distributed or distributable to beneficiaries is the
amount on page 1, line 10. Each beneficiary is required to include
the distributed or distributable share of income, as shown on
Schedule K-1, on the individual income tax return. The name and
identification number of each beneficiary should be entered as it
appears on the individual return. Estate returns should also identify
the beneficiary class of each beneficiary by checking the box for
the beneficiary class as determined by Kentucky inheritance laws.
Beneficiary classes are listed below:
CLASS A
(1) Surviving spouse, parent
(2) Child (adult or infant)
child by blood, stepchild, child adopted during infancy, or a child
adopted during adulthood who was reared by decedent during
infancy
(3) Grandchild
issue of child by blood, stepchild, child adopted during infancy, or
of a child adopted during adulthood who was reared by decedent
during infancy
(4) Brother, sister (whole or half)
Page 1 of 5

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CLASS B
*Nephew, niece, half-nephew or half-niece, daughter-in-law, sonin-law, aunt, uncle, or great-grandchild who is grandchild of child
by blood, stepchild or child adopted during infancy .
CLASS C
All persons not included in Classes A or B and educational,
religious, or other institutions, societies or associations, or public
institutions not exempted by KRS 140.060
* Nephews and nieces by marriage and great nephews and nieces
are Class C beneficiaries.
Generally, federal rules and regulations apply but amounts
reported may be different due to differences in Kentucky and
federal laws, e.g., statutorily exempt income, U.S. government
bonds, municipal interest, etc.

Angel Investor Recapture—Enter amount of Angel investor
income tax credit recapture.
Line 17(c)—Add the amounts from lines 17(a) and (b), and enter
total on line 17(c).
Line 18—Nonrefundable Credits
To claim credits for any of the following business incentive and
other tax credits, enter the amount on line 18, identify and enclose
any applicable schedule(s) or certification(s) to substantiate the
credit(s) claimed. If more than one credit is claimed, enclose a list
of credits claimed and enter the total.
•	

limited liability entity credit (KRS 141.0401(2))

•	

Kentucky small business tax credit

•	

skills training investment credit

Line 11—Enter excludable amount of retirement income. Enclose
Schedule P if the pension income is more than $31,110 and is from
a retirement system of the federal government, Commonwealth
of Kentucky or a Kentucky local government. The fiduciary may
claim a deduction for retirement income not distributed on Form
741, line 10. Each beneficiary is entitled to combine the retirement
income distributed on line 10 with other pension income received
and claim the pension income exclusion on his or her individual
income tax return.

•	

nonrefundable certified rehabilitation credit

•	

credit for tax paid to another state

•	

employer's unemployment credit

•	

recycling and/or composting credit

•	

Kentucky Investment Fund credit

•	

qualified research facility credit

•	

employer GED incentive credit

Line 12, Federal Estate Tax Deduction—Enter amount.

•	

voluntary environmental remediation credit

Refer to federal Form 1041 instructions for the definition of the
federal estate tax deduction.

•	

biodiesel credit

•	

clean coal incentive credit

•	

ethanol credit

The federal estate tax deduction does not include fiduciary income
tax paid on federal Form 1041. A copy of the computation for the
deduction must be enclosed with Form 741.

•	

cellulosic ethanol credit

•	

railroad maintenance and improvement tax credit

Line 15, Nontaxable Intangible Income Attributable to
Nonresident Beneficiaries—Enter the amount of intangible
income included in line 14 that is attributable to the nonresident
beneficiaries and was not deducted on line 10 as an income
distribution deduction.

•	

Endow Kentucky credit

•	

New Markets Development Program credit

•	

distilled spirits credit

•	

angel investor credit

•	

film industry tax credit

•	

inventory tax credit

•	

renewable chemical production credit

Enclose federal Schedules K-1 or a schedule that lists the name,
address, Social Security number and the amount of income of
each beneficiary.
Line 17(a), Tax Computation—Compute your tax by multiplying
line 16 by 4.5% (.045).
Line 17(b), Lump- sum Distribution — Special 10 –Year
Averaging—Kentucky allows a special 10-year averaging method
for determining tax on lump-sum distributions received from
certain retirement plans that qualify for federal 10-year averaging.
If this special method is used for federal purposes, Form 4972K, Kentucky Tax on Lump-Sum Distributions, and Schedule P,
Pension Income Exclusion, must be filed with Form 741. Enter
tax from Form 4972-K.
Recycling Composting Recapture— Enter amount from
Schedule RC-R.
Distilled Spirits Recapture—Enter amount from Schedule DS-R.
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To claim credit(s) for tax paid to another state, enter the amount on
line 18 and identify as "credit for tax paid to another state." A copy
of the return filed with any state for which credit is being claimed
must be enclosed with Form 741.
Limited Liability Entity Tax Credit (KRS 141.0401(2))—An
individual that is a partner, member or shareholder of a limited
liability pass-through entity is allowed a limited liability entity tax
(LLET) credit against the income tax imposed by KRS 141.020
equal to the individual's proportionate share of LLET computed
on the gross receipts or gross profits of the limited liability passthrough entity as provided by KRS 141.0401(2), after the LLET is
reduced by the minimum tax of $175 and by other tax credits for
which the limited liability pass-through entity may be allowed. The
credit allowed an individual that is a partner, member, or shareholder of a limited liability pass-through entity against income tax
shall be applied only to income tax assessed on the individual's

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proportionate share of distributive income from the limited liability
pass-through entity as provided by KRS 141.0401(3)(b). Any remaining LLET credit shall be disallowed and shall not be carried
forward to the next year.

Line 20(c)—Nonresident Withholding from Form PTE-WH, line 9
and/or Pass-through Entity Tax Credit from Form PTET-CR, line 9.

Nonrefundable Kentucky limited liability entity tax credit
(KRS 141.0401(2))—The credit amount is shown on Kentucky
Schedule(s) K-1 from pass-through entities (PTEs) or Form(s)
725 for single member limited liability companies. Copies of
Kentucky Schedule(s) K-1 or Form(s) 725 must be attached
to your return.

Line 21—Subtract line 20(d) from line 19.

Kentucky Limited Liability Entity Tax Credit Worksheet
Complete a separate worksheet for each LLE. Retain for your
records.
Name______________________________________________
Address____________________________________________
FEIN______________________________________________

%

Percentage of Ownership ....................... 	_______________
  1.	 Enter Kentucky taxable income
	
from Form 741, line 16........................... 	_______________
  2.	 Enter LLE income as shown
	
on Kentucky Schedule K-1
	
or Form 725) ....................................... 	_______________
  3.	 Subtract line 2 from line 1 and
	
enter total here...................................... 	_______________
  4.	 Enter Kentucky tax on income
	
amount on line 1.................................... 	_______________
  5.	 Enter Kentucky tax on income
	
amount on line 3.................................... 	_______________
  6.	
	
	
	

Subtract line 5 from line 4. If line 5
is larger than line 4, enter zero.
This is your tax savings if income
is ignored.............................................. 	_______________

  7.	 Enter nonrefundable limited liability
	
entity tax credit (from Kentucky
	
Schedule K-1 or Form 725) ............... 	_______________
  8.	 Enter the lesser of line 6 or line 7.
	
This is your credit. Enter here and
	
on Form 741, line 18.............................. 	_______________
Line 20(a)—Enter on line 20(a) all estimated tax payments, credit
from the previous year’s return and/or extension payments.
Line 20(b)—If Kentucky income tax was erroneously withheld on
income in respect of a decedent, enclose a copy of the wage and
tax statement of the deceased to Form 741. Enter on line 20(b)
the amount of withholding.

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Line 20(d)—Total amounts on line 20(a) through 20(c).

Any tax due must be paid in full at time of filing. Enclose check
payable to the Kentucky State Treasurer.
PENALTY AND INTEREST
Estimated Tax Penalty—If the amount owed is more than $500,
you may be subject to a penalty for underpayment of estimated tax.
The amount of the penalty may be calculated on Form 2210‑K.
Form 2210-K may also be used to claim exemptions to the penalty.
If paying the penalty or claiming an exemption, complete Form
2210-K, enclose with your return and check the box beside line
22(a). Enter the amount of the penalty on line 22(a).
If your return is filed after April 15, 2024, or any tax due on the
return is paid after April 15, 2024, you may be subject to additional
penalties and interest.
Late Filing Penalty—If a return is not filed by the due date or the
extended due date, a penalty of 2 percent of the total tax due for
each 30 days or fraction thereof that a return is not filed may be
assessed, not to exceed 20 percent. The minimum penalty is $10.
Late Payment Penalty—If the amount of tax due as shown on line
21 is not paid by the original due date of the return, a penalty of 2
percent of the tax computed due may be assessed for each 30 days
or fraction thereof that the tax is past due, not to exceed 20 percent.
The minimum penalty is $10. However, if the amount timely paid
is 75 percent of the tax determined due by the Department of
Revenue, no late payment penalty will be assessed.
Interest—Interest will be assessed at the "tax interest rate" from
the original due date of the return until the date of payment.
Note: Penalties but not interest may be reduced or waived if
reasonable cause for reduction or waiver can be shown.
SIGNATURE
To be valid, this return must be signed by the fiduciary or agent. If
prepared by a person other than fiduciary or agent, type or print
name of person preparing the return.
SCHEDULE M (FORM 741) INSTRUCTIONS
Part I—Additions to Federal Adjusted Total Income
Line 1—Enter interest income from bonds issued by other states.
Line 2—Enter additions from Kentucky Schedule(s) K-1 received
from partnerships, fiduciaries and S corporations.

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Line 3—Enter other additions to income. Other additions may
include:
•	 interest deducted by an electing small business trust (ESBT)
on the federal Form 1041 for money borrowed to acquire S
corporation stock;
•	 state income taxes deducted on federal Form 1041;
•	 the portion of a lump-sum distribution on which you have
elected the 20 percent capital gains rate for federal income
tax purposes (Schedule P and Form 4972-K required);
•	 the federal net operating loss deduction;
•	 the passive activity loss adjustment (see Form 8582-K and
instructions);
•	 differences in pension (3-year recovery rule) and IRA bases;
•	 differences in gains (losses) from the sale of intangible assets
amortized under the provisions of the Revenue Reconciliation
Act of 1993;
•	 federal depreciation if you have elected to take the 30 percent
or the 50 percent special depreciation allowance for property
placed in service after September 10, 2001.
•	 real estate, local, and property taxes deducted on federal Form
1041.
•	 investment interest deducted on federal Form 1041.
•	 fiduciary fees deducted on federal Form 1041 other than those
described in IRC Section 67(e).
•	 attorney, accountant, and preparer fees deducted on federal
Form 1041 other than those described in IRC Section 67(e).
Line 4, Total Additions—Add lines 1 through 3. Enter on
Schedule M, line 4 and on page 1, line 2.
Part II—Subtractions from Federal Adjusted Total Income
Line 5—Enter interest from U.S. government bonds and securities
(enclose schedule).
Line 6—Enter subtractions from Kentucky Schedule(s) K-1
received from partnerships, fiduciaries and S corporations.
Line 7—Enter other subtractions from income. Other subtractions
may include:
•	 Kentucky net operating loss deduction;
•	 passive activity loss adjustment (see Form 8582-K and
instructions);
•	 differences in the gains (losses) from the sale of intangible
assets amortized under the provisions of the Revenue
Reconciliation Act of 1993;

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•	 Nonresident trust or nonresident estate—Subtract the amount
of income reported on Form 741, line 1 that is not taxable to
Kentucky. Note: Deductions must also be adjusted to claim only
that portion of deductions allocable to the Kentucky income;
•	 Kentucky depreciation computed in accordance with the
Internal Revenue Code in effect on December 31, 2001, if you
have elected to take the 30 percent or the 50 percent special
depreciation allowance for property placed in service after
September 10, 2001;
•	 income of military personnel. Additional information may be
found in the instructions for Form 740.
Line 8, Total Subtractions—Add lines 5 through 7. Enter on
Schedule M, line 8 and on page 1, line 6.
Note: The following items are still allowable on the 741 Kentucky
Fiduciary Income Tax Return and do not need to be added back
on Form 741, Schedule M:
•	 Fiduciary fees paid or incurred to the fiduciary for administering
the estate or trust during the tax year.
•	 Attorney, accountant, and return preparer fees paid for
preparation of fiduciary income tax returns, the decedent’s final
individual income tax returns, and all estate and generation
skipping transfer tax returns.
SCHEDULE K-1 INSTRUCTIONS
A Kentucky Schedule K-1 is required if you claim an income
distribution deduction on Schedule B and have differences in
income reported on Schedule M. Enclose copies of federal
Schedule(s) K-1 if there are no differences.
Schedule K-1 is used to report the portion of income distributed
to beneficiaries that is subject to tax. All items of income subject
to tax and all deductions are listed on Schedule K-1.
•	 Enter in column (b) amounts from federal Form 1041, Schedule
K-1;
•	 enter in column (c) any difference between Kentucky and federal
amounts (Schedule M); and
•	 enter in column (d) the Kentucky income and deduction
amounts.
Line 11, Resident Beneficiary Adjustment—Complete line 11
to determine the net difference between the federal Schedule
K-1 and the Kentucky Schedule K-1. Combine from column (c),
lines 1 through 6, and portions of lines 9 and 10. Do not include
amounts from lines 7, 8, 9(a), or other deductions that may qualify
as itemized deductions. These amounts may be entered on the
beneficiaries’ Form 740, Schedule A, Itemized Deductions
Schedule.

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Nonresident Beneficiaries (Form 740-NP Filers)—Complete
Schedule K-1 for nonresident beneficiaries. This Schedule K-1
should reflect all income that has been claimed as part of the
income distribution deduction. However, nonresident beneficiaries
are only subject to tax on the following types of income:
•	 from Kentucky sources;
•	 from activities carried on in Kentucky;
•	 from the performance of services in Kentucky;
•	 from real or tangible property located in Kentucky; and
•	 from a partnership or S corporation doing business in Kentucky.
Line 12(a)—If an income distribution includes net distributable
share income from a limited liability entity subject to tax under
KRS 141.0401(2), complete line 12(a).
Line 12(b)—Enter each beneficiary's share of Kentucky income
tax withheld from Form PTE-WH or Pass-through entity tax credit
from Form PTET-CR.
ADDITIONAL INFORMATION
If you need further assistance, contact a local Kentucky Taxpayer
Service Center or the Department of Revenue, Frankfort, KY
40620, (502) 564-4581.

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