How is EIDL Advance reported on 1120S?

[ThomasM125]

The taxable loss figure looks correct based on what numbers you provide here.

$30,000 of the money you received has to be paid back, and that was used to finance much of the $46,000 loss. An additional $26,000 came from non-taxable grant money.

As you pay back the $30,000, you won't be able to deduct it, so it is sort of like you get the loss deduction up front, then you'll pay taxes on income in future periods. So, it all makes sense. 

[pflipper]

The entry on 16 B for Other tax-exempt income seems like a logical place to put this, but then the balance sheet is out of whack because the retained earnings is wrong.    Here's what the details say:

Other Tax-Exempt Income Smart Worksheet
-- above Line 16b
Enter other tax-exempt income on the Schedule M-1 Items Worksheet. The program enters a description and the amount entered on the Schedule M-1 Items Worksheet on this expanding table.

The problem I've found is that the software is supposed to enter the amount from 16 b on the M-1 worksheet, and it doesn't , so the retained earnings gets out of whack, and the software keeps circling back to the M-1 worksheet for an error.

***UPDATE*** You have to enter the EIDL grant amount (non-taxable) as follows - FIRST in the M-1 form, under "Other permanent income items".  I put the note "EIDL Grant, non taxable", then the amount per the books.   That will carry it over to item 16b,  NOT the other way (16b --> M-1) .  Then books match up. 

However, this now causes an issue with CA state taxes, as they ask specifically about EIDL grants and incorporate the amount you put in PLUS add in the amount entered into M-1/16b.  So, it is still messed up in Turbo Tax.

Intuit - if you are reading these, please fix this.

[sanjoaquinbookkeeper]

I am also struggling in balancing - California Form 100S p4-6 Sch M1 is out of balance by EIDL grant.  The grant is for $10,000 but I am off $40,000!  Help.  I did an override on Line 5B on Schedule M1 California and I must have done it wrong.  I am somehow making it worse.  It now says that CA Sch M1 line 8 and Sch K line 19D are out of balance by $30,000

The Federal Return 1120s M1 balanced when I inputted the EIDL Grant Nontaxable on line 16 on page 4 of 1120s.  The return went through Turbo Tax with no error.

Please help!

[bill334]

I entered the EIDL Advance on line 16(b) and the tax return is correct.  But, TT will not allow me to e-file it.

It seems to want me to complete the Balance Sheet.  But my company is small and is not required to complete the Balance Sheet.

How can i get TT to e-file?  Or do I have to mail the return?

edit:  i deleted my entry on line 16(b) and entered it in the M-1 worksheet.  now TT lets me efile

[Peter312]

You probably have done this but just in case...

If you click on the Federal Taxes, Balance Sheet tab in the Step-by-Step method, and then click one screen further on you will get the option of skipping the Balance Sheet because of your small size.  Is the YES option chosen?  Then maybe you could eFile... 

[bill334]

yes, i did that.  didn't help

[Alannaive]

@pflipper  THANK YOU! This is what finally solved my problem. No one, not even a so-called "expert" at TurboTax understood this issue. He just plunked around on the return for over an hour not being able to figure out how to fix it. And yet, now that I understand it, it seems so simple:

If you have non-taxable income (EIDL Grant, Forgiven PPP Funds, Non-taxable Credit Card Rewards money, etc), DON'T enter it anywhere as income on the return. ONLY enter as "non-taxable income" on the M-1 (which you have to access through the Forms function). Then, the K-1s and Schedule M-2 will populate automatically with the appropriate info. This brought my Balance Sheet and Retained Earnings into balance. Hallellujah!

Everyone kept saying these items shouldn't be entered as Income, but no one explained where it actually should be entered so that it would still be accounted for and allow for the Balance Sheet, etc to match up. 

Thank you for saving my day!

And, side note to Turbo Tax! You need to address this in the Step-by-Step part of the app. I shouldn't have to be that level of an expert to be able to properly deal with a problem that MOST small business owners are dealing with, especially in 2020 and beyond. Just ask about non-taxable income items and enter them in the M-1, M-2 and K-1, automatically.  I thought the program was supposed to be helpful!

[pflipper]

Glad to help.  It took me long enough to figure out.  You would think that the developers at Turbo Tax would make this easier.  We pay enough for the software, the extra $$$ for state tax filings, etc.

[caja15455]

So, this is the ONLY place you put the EIDL advance and it only affects Shareholder Basis. Correct? 

Not on Schedule M-1 Line 5 Other Tax Exempt Income?

[pflipper]

Reread the things I said to do under ** UPDATE***.   Do that and you should be good, books match.

[Abe7]

@ThomasM125 When I add my EIDL grant, it shows that I end up having a loss after adding up all the expenses for the year. So in other words, after inputting my taxable income, EIDL grant (on line 16b), and all expenses, it shows that I have a loss for the year. Would this be accurate considering that EIDL grant is non-taxable?

Hypothetically my loss shows $-6000, but I received an EIDL grant of $7,000. Would this mean that I should just have an overall taxable income of $0 and not a loss?

[pflipper]

The entries here should be a reflection of your accounting books.  I would not use Turbo Tax to determine your P&L.  That said, it's possible that you could have EIDL grant income and have a business loss.  What do your books show?

[Abe7]

Someone answered the question for me. They essentially explained that since the grant is not taxable, I wouldn't put it as income in my books. It would go to the shareholders equity account. So will still show a loss for the year.

I had originally placed the grant as "other income" in my books. By adding the normal income my business made and the grant as "income," this left me in the (+) after deducting expenses. Which is wrong.

Even though the grant helped me stay above water, I had a loss for the year in the eyes of the IRS since the grant is not seen as taxable income.

[JamesG1]

The Consolidated Appropriations Act 

provides that taxable income does not include EIDL grants or certain loan repayment assistance.

Report the income on line 16(a) as Other Tax-Exempt Income if you are filing a form 1120-S.  The entry may require a reconciliation issue if you report your balance sheet on your tax return. This will be handled by the entries in Schedule M-1 and M-2 in TurboTax and on your corporate income tax return.

@Abe7 

[Edited 04/06/2021 2:07 PM PST]

[Abe7]

Thank you. Just to clarify, I'm sure you meant 16(b) not 18(b) correct? Regarding 1120S.

Here is another thing I noticed.

I included the expenses I paid using the EIDL grant, with the rest of my expenses I incurred using my normal business income. This obviously will add up to a loss on the 1120S since the grant is not taxable income but the expenses paid with the grant are deductible. Correct?

Also, for those in CA, Turbo Tax added  the EIDL grant on line 12 of side 2. This is for form 100S. CA sees the grant as taxable income, so now I am showing a profit and not a loss as I did on the 1120S. Would that be correct? I included the itemized deductions made with the grant on line 14 of the page "Other additions and other deductions".