How to Report PPP Loan on 1120-S / Balance Sheet?

[rls85]

S Corp received roughly $35,000 in PPP loans in 2020, and no repayments have been made (deferred for 2 years). The business has not yet applied for forgiveness, but anticipates 100% forgiveness. In addition, Congress passed into law the ability to fully deduct expenses paid by forgiven PPP loans, but not sure if that is relevant in this case.

How/Where should this PPP loan be reported on Form 1120-S / Balance Sheet?

[tagteam · Accepted solution]

Clearly you have an increase (debit) in cash on the asset side and need to increase (credit) a liability account on the liability/shareholders' equity side (most likely notes payable in one year or more or other liabilities).

[GaryRichards]

I have a similar problem.  My loan was granted and forgiven in calendar year 2020 so I consequently do not have any long or short term debt.  I'm not sure how to categorize the loan deposit on the income side or how to handle the funds on the balance sheet.     

[clove1]

Same issue.  Following this thread.

[ThomasM125]

You deposit cash for the loan amount when you receive it and credit other income if you believe the loan will be forgiven. When you complete your tax return, you complete schedule M-1 that will reconcile your book income to the income reported on your tax return. Those adjustments will flow down to schedule M-2, which will reconcile your equity as reported on your financial statement to that reported on the tax return.

[jprince1]

My PPP loan is in process being forgiven. so obviously it wont affect my filing this year. so do I just enter my PPP loan amount in the other income section of turbo tax business? I was also given an EIDL grant by the SBA of 1000.00  Do I also enter that in the other business income section and specify what it is?

Thanks

[ThomasM125]

@jprince1

If you think the PPP loan will be forgiven, then you won't report it as taxable income in TurboTax. You would report it on line 16(a) as Other Tax-Exempt Income if you are filing a form 1120-S. It would appear on your financial statement as either loan payable or other income, so there may be 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.

The EIDL grant is normally taxable, but there may be more guidance on that by the IRS in the near future. You would enter it as other income in TurboTax, if it is taxable.

[Edited 1/25/21 1:31PM PST]

[MZVA]

I have been able to get my Balance Sheet to balance, but I now have a hugely negative number for Retained Earnings.  My business, not accounting for my PPP loan did incur a loss for the year, but the negative retained earnings are far more than the loss we incurred, and we had positive retained earnings last year.   What could I have done wrong?

[tagteam]

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@MZVA wrote:

What could I have done wrong?

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Did you make any distributions (of cash or property) during the tax year?

[MZVA]

Yes, due to the PPP loan, we were able to make cash distributions, despite the loss on the books.

[JamesG1]

How did you report the PPP loan on line 16(a) as Other Tax-Exempt Income?  Or did you report it in some other way?

Do Retained Earnings appear to be decreased by the amount of your PPP? 

[tagteam]

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@MZVA wrote:

Yes, due to the PPP loan, we were able to make cash distributions, despite the loss on the books.

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Yes, the cash distributions will cause a corresponding decrease in your retained earnings.

[MZVA]

It is on schedule M-1 line 16-b as other tax-exempt income and also on line 16-c as nondeductible expenses.  I also had to enter it as other liabilities on the balance sheet.  Is that correct?

[jprince1]

My business is very small so I am not required to file a balance sheet. So will I have to file a balance sheet now? Also the EIDL was called an advance and it was only 1000.00 and I know all of those were being forgiven.

[tagteam]

See Line 11 on Schedule B.

You do not have to file a balance sheet (Schedule L) if:

a) The corporation’s total receipts for the tax year were less than $250,000, and

b) The corporation’s total assets at the end of the tax year were less than $250,000.