Sub-S Corp, filing 1120S. In 2020 received a PPP loan recorded as a liability on the balance sheet. In early 2021 the PPP loan was fully forgiven. The liability was eliminated, and forgiveness recorded as non-taxable income. In 2021 received an identical second PPP loan. This was forgiven in late 2021, the liability eliminated, and the forgiveness once again treated as non-taxable income. The second PPP loan was not on the books at the beginning or the end of the year and will not show up anywhere on the balance sheet. The first PPP loan is correctly eliminated from the balance sheet of the 1120S. However, on the M-1, double that amount is reported as non-taxable income for the forgiveness of both loans. Both entries are correct, I think, but it looks like I've doubled the non-taxable income. That screams red flag to me! Is there a better way to handle this?
It is correct. Since both PPP loans were forgiven in 2021, both should be reported as non-taxable income.
However, there is a known issue with the Step-by-Step completing the M-1 correctly and we are working to resolve this. There is a workaround for this so you do not have to delay filing your return.
Please follow these steps:
I have followed your instructions, but the 1120s balance sheet is out of balance. The ending Liabilities and Equity are understated by one PPP loan amount. Could you please review your instructions? Perhaps you could expand on your answer to my original inquiry. I suspect that I'm missing something.
I apologize, I misspoke. Include the total for both loans on both Other permanent items lines.