forgiven PPP loans on Schedule M-2 for 1120S

Probably does not matter but I would list them separately.

Note that the most current Instructions for form 1120-S page 22 Schedule B Question 12 states:

Question 12

Amounts related to the forgiveness of PPP loans are disregarded for purposes of this question.

I tried to list distribution separately $3000 on AAA and $10,000 on OAA.  After this change, my stock basis is completely off and Schedule M-2 smart worksheet line G changed to $26,000 from zero.

Maybe I shouldn't bother to list separately? Or should I override?

You want to list separately but the correct reporting of the PPP loan forgiveness on M-2 of the 1120-S should be:

1. Report on Line 3, Col (d) the amount of the PPP loan forgiveness
2. Report on Line 5, Col (d) the amount of expenses paid with the PPP proceeds forgiven,  

The amount of expenses and the amount of the PPP loan forgiven should offset each other and there should not be a tax consequence or should not affect your stock basis.     

Here is an article that discusses the correct handling of the  PPP Loan Forgiveness.  

You can also get guidance for the correct handling in the Form 1120-S Instructions.

Thank you very much for your kind reply! Actually I am surprised to see ppp loan reporting is different from last year. I reported  Stock basis was increased because of tax free forgiven ppp loan last year. I think TurboTax doesn't handle correctly reflecting this change yet.  Will there be an update in TurboTax business software? 

I am sure that there are updates still coming out to the TurboTax business software.   Updates to software goes on throughout the tax season.    What I do know and I have learned from my research on the subject of PPP loan forgiveness is that it does affect the basis (in the year forgiven).  

The instructions I previously sent you are the IRS expanded guidance on reporting expenses used to obtain PPP Loan Forgiveness on Form 1120S, Schedule M-2.   This is the guidance from the IRS to reconcile M-2.

The amount of the tax-exempt income (PPP loan forgiveness) would be reported on Schedule K-1,  Box 16 with a Code B.   See Entering PPP Loan Forgiveness

I was wondering in Turbo Tax Business - S Corps is working on the update for schedule M-2 to properly show the expenses paid by the PPP loan forgiveness.  According to the instructions for the form PPP forgiveness is shown in OAA (this is handled correctly) but then the expenses need to be recorded under AAA line 3 and line 5 in OAA.  I was trying to work around this to get my schedule M-2 corrected but am not having any luck.  

How do we get Turbo Tax to record this correctly?  I don't see how we put an entry on line 5.

You can enter the forgiven PPP loan(s) total on the About Your Business page under Business Info in TurboTax Business.  This flows through the return and populates Schedule M-2 correctly.

@lmr57

Thank you for that update. I understand that part and I’m having no issues with that. The instructions For showing the PPP loan forgiveness and expenses on schedule M2 have additional steps. It also says any expenses paid with PPP loans should be shown and included on line 3 in column one and five in column D.  I cannot figure out how to make that work.  Basically the OAA column will not to zero.   I am wondering if there is a way to add in extra items on M2 or if TurboTax will be doing an additional update to the program to match the instructions for this form from the IRS?

I am waiting for TurboTax to be updated with this change on M2. I could override on M2 form following the IRS instruction, but I am going to wait. I hope TurboTax will hurry up. 😢

Does anyone at Turbo Tax have any idea when the program will be updated to match the instructions for the M-2 form on the 1120S?  Hopefully they are working on this.

We are looking into the matter.   In the meantime have you tried completely the M-2 as suggested below.   
 

You want to list separately but the correct reporting of the PPP loan forgiveness on M-2 of the 1120-S should be:

1. Report on Line 3, Col (d) the amount of the PPP loan forgiveness
2. Report on Line 5, Col (d) the amount of expenses paid with the PPP proceeds forgiven,  

The amount of expenses and the amount of the PPP loan forgiven should offset each other and there should not be a tax consequence or should not affect your stock basis.  

 

Here is an article that discusses the correct handling of the  PPP Loan Forgiveness.  

 

You can also get guidance for the correct handling in the Form 1120-S Instructions.

@mini 11

Hi,

As of today, Turbotax hasn't updated with new M2 instruction by IRS.

I was able to override, but Turbo tax gives me error/not done. 

I had forgiven PPP loan $11,800 in 2020 year and $10,800 in 2021 year.  Following IRS instruction (below), I entered combined two PPP loans  $22,600 on line3 col (a) AAA and line 5 col(d) OAA. My stock basis is the same as before I override it.  Can Turbotax experts tell me if I did correctly or not? When will the Turbotax be updated regarding M2 form? 

column (a) on line 1 of the Schedule M-2 includes expenses that were paid in a prior year with proceeds from PPP loans that were forgiven this year, an S corporation should report that amount in column (a) on line 3 and in column (d) on line 5 of the Schedule M-2.

No, you only include prior year (2020) expenses that were paid with PPP funds forgiven this year (2021) if the expenses are being reported on the current year (2021) tax return.

So, in your case listed above, I'm assuming the $11,800 (2020) PPP loan was forgiven in 2021.  If page 1, line 21 of your 1120-S includes payroll expenses related to 2020, but not reported on your 2020 1120-S, then the $11,800 goes on 3(a) and 5(d).  If the $11,800 was forgiven in 2020, then you do not enter this loan anywhere on your 2021 return.

The receipt of the 2021 loan is correctly reported 3(d) but needs to be added to the forgiven amount on 5(d).

Enter this information via forms mode, as you did the "override" you entered on your screenshot.

@turtle11

Thank you very much!

I was very confused... My 2020 PPP loan $11,800 was forgiven in JAN, 2021, so I reported as if forgiven in 2020. As you see on line1 M2, beginning of tax year , AAA $933 and OAA $11,800. (I hope this part is reported correctly)

I followed the instruction carefully along with your advice. I hope it's fine now. 

I took the distribution $12,733 which is AAA $933 and OAA $11,800. Do I need to enter $933 on line 7 col (a) and $11,800 on line 7 col(d) separately?

Please advise me. I am a small company trying to do everything all by myself...

Thank you very much!

@AliciaP1 @JillS56 @JamesG1 

No, you do not.  But, the $10,800 is already reported in column d for line 3 - it should NOT also be in column a.  Otherwise this is correct!

I am so sorry... I feel that I might not understand this instruction (below). My forgiven PPP loan was used for my payroll 100%, so line2 of M2 includes PPP loan expenses that used for my payroll. So I entered $10,800 on line3 col (a) as well. If I don't enter $10,800 on line3 col (a), my stock basis amount is not consistent with the total of  line8 col(a) and line 8 col(d) on M2. My stock basis is bigger by $10,800. My understanding is that my stock basis should equal to the total of  line8 col(a) and (d) on M2. Am I not understanding correctly?

I am almost ready to file except this part... I should probably wait for Turbotax to be updated with this M2 instruction changes??

If column (a) on line 2 or line 4 of the Schedule M-2 includes expenses paid with proceeds from forgiven PPP loans, an S corporation should report that amount in column (a) on line 3 and in column (d) on line 5 of the Schedule M-2.

@AliciaP1 @JillS56 @JamesG1 

You should enter $10,800 on line 3a AND on line 5d.  5d takes it back out.

This is so confusing to a non Accountant, who just wants to file their Business Taxes.  Return is due March 15th, and I have been watching these conversations about PPP and how it should appear and what overrides can be done.  The same as other users, when I override, I get errors, etc.  I have tried answering NO to PPP loan question and all shows up on M1 and M2 as expected.  I have tried answering YES to PPP Loan, This results in a loss for the year, and the PPP loan, but nothing appears in M2 Line 5 Column D.  Depending which way I do this, changes the M1, M2 & K1, plus sometimes the Balance Sheet will not reconcile.  IS TURBOTAX GOING TO UPDATE THE PROGRAM TO HANDLE THIS CORRECTLY AND WHEN CAN WE EXPECT THAT?

Will Turbotax be updated on M2 before MAR 15? Should I file an extension? 

I am hesitating to file 1120S without M2 update as well. Would it be OK?

Some things I know about my return, PPP loan forgiveness, and TurboTax:

1. I'm finishing up on 03/15/22, and TurboTax is still doing this incorrectly.  No update has fixed it.
2. TurboTax 2021 is for sure handling PPP loans differently than it did for 2020. 
3. It has an interview prompt about forgiveness.
4. This populates to schedule M-2 line 7D "Distributions."  This is wrong and unfortunately can affect your "Distributions in Excess of Retained Earnings" number,  (depending on YOUR retained earnings and YOUR distributions).  For me, if for sure did.
5. What I did is just select "No" to using the M2/Retained Earnings Worksheet Amount.  This allowed me to fill in the Schedule M2 correctly.   Start with the values and lines that were auto-populating and just enter them.  Distributions in line 7D are zero, as they should be for me.  I added the line for loan expenses to 5d, per the IRS instructions.  I even changed my line 1D, which was wrong because TurboTax handled this wrong in 2020, and because the IRS recently released guidance about PPP loan forgiveness and the Other Adjustment Account.  I tried to include a statement with the explanation about this, but TurboTax refuses to included it with the return when I print, so oh well.
6. In the end, my Other Adjustment Account is at zero, where it should be without PPP loans affecting it.
7. When I didn't use the Worksheet amounts, in the error check, TurboTax made me move interest income from the worksheet where it originally was directly to Schedule K, line 4.  No big deal. 
8. I was able to e-file.

I think (but am not 100% sure) that covers everything I did, but if you have questions, reach out and I can look at my return and worksheets for you.

TurboTax really needs to ask you if you got forgiveness, how much was used for expenses, and do all this for you.  Insane that it doesn't.  And not printing that supporting statement?  Well that's just buggy.

Good enough for me!  If the IRS wants to question anything, I'll let them.  I seriously doubt it will be an issue.