Which option do I choose for 2021-48? I got my loan in one year but I applied for and received forgiveness the next year? I file regular Sch C.

[Cynthiad66]

TurboTax for 2021 will produce the PPP forgiveness loan statement.  To enter the information regarding your PPP loan forgiveness, go to Wages & Income, then scroll down the page and find the Less Common Income section.  At the bottom of the Less Common Income section, select Miscellaneous Income.  On the next page, you will see an option for Forgiveness of PPP loans.  Select Forgiveness of PPP loans and respond to the questions when prompted.

Here is a picture of the top part of the Statement we produced in our test return.  

per @GeorgeM777

[confusedabouttaxes23]

This helps but it does not answer my questions. I am using Turbotax online and not the desktop product if that makes a difference. The prompts ask. Did you have PPP loans in 2020 or 2021 that were forgiven? > I did get the loans in 2021 but they were forgiven in 2022 so do I select yes or no? Is it saying forgiven in 2020 or 2021 or forgiven later on in general? Next prompt says. Fill out the information below about the PPP loan(s) you received and were later forgiven. The options are Treat tax-exempt income resulting from PPP loan forgiveness as received or accured: As, and to the extend, that expenses are paid or incurred. When forgiveness is applied for. When forgiveness is granted. Which option do I choose? My loans were forgiven in 2022 but I paid like everyone else expenses using them in 2021 since that was my covered period. Do I choose the first option here. Which option do I choose? Next question asks. Enter the amount of tex-exempt income from PPP loan forgiveness treated as received/accrued below. Does this include the interest SBA paid for me to my lender for the PPP or only the PPP principal amounts only? Also this is a little confusing. The instructions on 1040 says per loan so do I combine the amount for both loans since they were both forgiven in 2022 and received in 2021 my first and second draw. The 1040 instructions says each statement per loan. But the Turbotax prompts only once for each year so does not give me an option to add more loans. Its wrong in the online version.

[PatriciaV]

If you applied in 2021 but the loan wasn't forgiven until 2022,  the answer is probably "No." In this case, you would not enter an amount on this page. You'll report the loan forgiveness on your 2022 tax return.

In most cases, you are a cash-basis taxpayer so you report income when it is received. In the case of your loan forgiveness, that would be in 2022. It's considered debt forgiveness income, even though you received the cash in 2021. But you don't report the income until you know the loan is forgiven. This is the first of the three choices ("Treat tax-exempt income resulting from PPP loan forgiveness as received").

However, some taxpayers will choose:

1. "As, and to the extend, that expenses are paid or incurred." You "book" the loan forgiveness as you book the expenses paid with the loan, with the expectation that the loan will be forgiven.

2. "When forgiveness is applied for." You "accrue" the forgiveness income when you send in the application; as a cash-basis taxpayer, you don't accrue anything.

Finally, unless you chose to use the accrual-basis of accounting (uncommon), you are a cash-basis taxpayer.

[confusedabouttaxes23]

I am a cash based. I am confused about your reply. Again my expenses like everyone else was in 2021 covered period. I knew I would get forgiveness but did not apply till 2022 and received it in 2022. Can I choose option 1? I don't know what you mean by booked but I did expect to be forgiven. So can I choose option 1 which is when expenses are paid

[RobertB4444]

@confusedabouttaxes23  You did not have a PPP loan that was forgiven in 2021.  Answer 'no'.  

[confusedabouttaxes23]

This is copied from turbotax community. "

For 2021 the IRS requires you report the expenses you paid with your forgiven funds and you report those expenses for 2020 if your 2020 funding was forgiven in 2021.

The questions are in regard to when you recognized the expenses that were covered by the PPP funds:

if you claimed the expenses when you paid them

if you claimed the expenses when you applied for forgiveness

or if you claimed the expenses when you were granted forgiveness

So this really matters if you had a 2020 loan that wasn't forgiven until 2021, but if you recognized the expenses on your 2020 tax return your answer is 1 (for example).

If you are filing your 2021 return and you have not yet received notification that your loan is forgiven, you will answer "PPP forgiveness not granted at the time of filing the return".

Is the question asking was it forgiven in 2021 or is the question asking was it forgiven in general? It was forgiven in general just not 2021 but 2022. Since everyone cover period was 2021 why can't I use option one? My loans were forgiven in general just in 2021. So can i use option 1? Please explain why or why not option 1?

[PatriciaV]

If you did not receive notice that the loan was forgiven before 12/31/2021, you should not choose option 1 UNLESS you also report loan forgiveness INCOME in 2021. As a cash-basis taxpayer, that is unlikely. But if you choose to report both the income and expenses in 2021, do not report them again in 2022.

[confusedabouttaxes23]

This is what 1040 page 23 instructions says "Rev. Proc. 2021-48, 2021-49 I.R.B. 835, permits taxpayers to treat tax-exempt income resulting from the forgiveness of a PPP Loan as received or accrued: (1) as, and to the extent that, eligible expenses are paid or incurred; (2) when you apply for forgiveness of the PPP Loan; or (3) when forgiveness of the PPP Loan is granted." What is it saying? Why doesn't it simply say you can take tax exempt income when you get forgivness simple? What I understand is 1. You can take tax exempt income from ppp when you paid the expenses 2020 or 2021 even is you did not get the forgiveness, 2. When you applied for forgviness or 3 when you got it. Is this giving you a way to use Rev proc 2021-48 in the year your covered period was?

[AliciaP1]

Yes, your interpretation of the choices is correct.  If you want to keep the expenses in the year incurred but have not applied for or received forgiveness you will choose #1.

@confusedabouttaxes23

[confusedabouttaxes23]

@AliciaP1 

In 2021 it was still a loan. I applied for and got forgivness in 2022. So for 2021 tax year can I still choose option 1? You ending "but have not applied for or received forgiveness you will choose #1." Confused me.

[AliciaP1]

Yes, option 1 states you are reporting the expenses or payroll payments (even Schedule C draws) in the year they actually happened which for you is 2021.  It doesn't matter when the PPP loan is forgiven when you choose option 1.

@confusedabouttaxes23

[iamartin]

@AliciaP1  you've helped me before with something else!  We received ours in 2020 but it was forgiven in 2021.  Where would that be noted in Turbotax if it was put as a liability in the 1120S return?  I'd appreciate any help!