You report the forgiven PPP loan and EIDL advance/grant as non-taxable income. In TurboTax Business for an 1120S member:
- Across the top of the screen, click on Federal Taxes.
- Click on Balance Sheet.
- Enter Total Year-end assets. Click Continue.
- Click No, I want to complete my balance sheet. Click Continue.
- Under Your reconciliations and balance sheet, click on Edit to the right of Income reconciliation.
- Click No, I’ll enter a different book income. Click Continue.
- If non-taxable PPP loan is $10,000, taxable income for the year is $59,000, so book income must now be $69,000. Click Continue.
- At Your reconciliations and balance sheet, make sure all three schedules are in balance.
- Click on Forms mode.
- Click on M-1 Worksheet. The forgiven PPP loan will be listed under Permanent Items (tax-exempt income).
- Click on a K-1. The forgiven PPP loan will be listed under line 16 code B.
See also Instructions for IRS Form 1120S page 35. States vary on their treatment.
Some are choosing not to report these items as tax exempt income at this time and may elect to amend at a later time.
Regardless of the IRS requirements, most tax software will require you to 'balance' the balance sheet, income statement, M1 and M2 before the tax return can be e-filed. Some have chosen not to 'balance' and mail the forms to the IRS.
This article states:
The Consolidated Appropriations Act also provides that taxable income does not include EIDL grants or certain loan repayment assistance.
