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usermarisapagano2248
New Member

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

 
12 Replies
ColeenD3
Employee Tax Expert

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

No. Not if it is forgiven.

 

Deductibility of PPP-funded expenses

 

The bill clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a Paycheck Protection Program (PPP) loan. This provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the date of enactment of the CARES Act. The provision provides similar treatment for Second Draw PPP loans, effective for tax years ending after the date of enactment of the provision.

 

While the CARES Act excluded PPP loan forgiveness from gross income, it did not specifically address whether the expenses used to achieve that loan forgiveness would continue to be deductible, even though they would otherwise be deductible. In April, the IRS issued Notice 2020-32, which stated that no deduction would be allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP loan because the income associated with the forgiveness is excluded from gross income for purposes of the Code under CARES Act Section 1106(i).

 

In November, the IRS then expanded on this position by issuing Rev. Rul. 2020-27, which held that a taxpayer computing taxable income on the basis of a calendar year could not deduct eligible expenses in its 2020 tax year if, at the end of the tax year, the taxpayer had a reasonable expectation of reimbursement in the form of loan forgiveness on the basis of eligible expenses paid or incurred during the covered period.

 

The AICPA disputed this interpretation of the CARES Act loan forgiveness rules, arguing that it was not Congress’s intent to disallow the deduction of otherwise deductible expenses. Congress has now agreed with that position.

In addition to the clarification about the deductibility of expenses paid with PPP funds, the bill clarifies that gross income does not include forgiveness of certain loans, emergency Economic Injury Disaster Loan grants, and certain loan repayment assistance, each as provided by the CARES Act. The provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the amounts not included in income by this section and that tax basis and other attributes will not be reduced as a result of the exclusion of those amounts from gross income.

The bill also gives Treasury authority to waive information filing requirements for any amount excluded from income by reason of the exclusion of covered loan amount forgiveness from taxable income, the exclusion of emergency financial aid grants from taxable income, or the exclusion of certain loan forgiveness and other business financial assistance under the CARES Act from income.

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DebraD
Level 1

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

Does this mean that a forgiven PPP loan does not need to be entered on the Corporation's tax return?  My understanding is that it would be considered "other tax-exempt income", Line 16b of form 1120S.  It is then added to the shareholders' basis.  Please clarify.  Thank you

ReneeM7122
Level 8

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

A PPP forgiven loan it is a balance sheet item and does not constitute taxable income,  You should include an adjustment in the Schedule M-1 section of TurboTax to handle the difference between your books and your tax.  

 

@DebraD

Josie6
New Member

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

I received a PPP loan as a self-employed individual who files a Schedule C.  The loan has been forgiven.  I understand that the rent and utilities paid from the loan are deductible.  Is amount paid to myself from the loan (not though payroll) deductible?

ToddL99
Expert Alumni

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

No, amounts paid to sole-proprietors using PPP funds are not deductible expenses unless they are paid by way of a "payroll" (W-2s with taxes withheld).

 

 

nongkangma
Level 3

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

PPP fund for self-employed, pay myself compensation with the PPP fund. Is the compensation taxable? 

Josie6
New Member

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

Yes, compensation you paid to yourself directly from the PPP loan is not a deductible expense, unless it went through payroll with withholdings, social security tax, Medicare tax, etc.   Other expenses you may have paid from your PPP loan such as utilities and rent are deductible.

JamesG1
Employee Tax Expert

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

@nongkangma

Payroll expenses paid from PPP loan proceeds are taxable income to the recipient.  Payroll expenses include the following:

  • Gross salary or wage
  • Tips
  • Gross commissions
  • Paid leave (vacation, family, medical or sick leave, not including leave covered by the Families First Coronavirus Response Act)
  • Allowances for dismissal or separation paid
  • Employee benefits costs (including retirement contributions).

On December 27, under the Consolidated Appropriation Act, 2021 overrode the IRS position and stated that taxpayers whose PPP loans are forgiven are allowed deductions for otherwise deductible expenses paid with the proceeds of a forgiven PPP loan.

 

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shookaafshar
New Member

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

Sorry, I got confused. I have received an SBA Disaster Loan in 2020, and it is not forgiven, and I'll start repaying it from June 2021 . Should I claim it on my taxes or not? (All of my deductions are from my W-2 incomes)

ToddL99
Expert Alumni

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

Loan proceeds are not income and are not reported on your tax return (other than as a liability on your balance sheet, if using TurboTax Business).

 

Loan principal payments are not deductible and are not reported on your tax return (other than as a reduction in the loan liability on your balance sheet if using TurboTax Business).

 

Interest payments on the loan are deductible business expenses.

 

@shookaafshar

caarostegui
Level 1

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

Just to make sure, an SBA loan that is NOT forgiven IS counted as income?

Critter-3
Level 15

I received a SBA disaster loan for my business is this loan money considered income on my taxes?

Loan proceeds are not income and are not reported on your tax return (other than as a liability on your balance sheet, if using TurboTax Business).

 

Loan principal payments are not deductible and are not reported on your tax return (other than as a reduction in the loan liability on your balance sheet if using TurboTax Business).

 

Interest payments on the loan are deductible business expenses.

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