To report capital gains on Form 1041 instead of the Schedule K-1:
- Go to the Input Return tab.
- From the left menu, select Beneficiary/Grantor Info. > 1041 Distributions.
- Select the Distribution Percentages screen.
- For each beneficiary, change the Short Term and Long Term percent to zero.
- This will remove the distribution from the Schedule K-1, and put the income on Form 1041, Line 22.