No. There needs to be an adjustment shown on your M-1 recognizing the PPP loan forgiveness.
If the PPP Loan has been forgiven. The adjustment will be shown on your M-1 as a book-tax adjustment. This adjustment would go on Line 5 of the M-1.
If the PPP loan has not yet been forgiven, you would not enter this adjustment, but add a liability item for the amount of the PPP loan. It would go on Page 4, Schedule L under Liabilities, Line 17.
Thanks for your reply. However, that adjustment was already entered by Turbo Tax as a result of the question about whether we had a PPP loan forgiven. After the TTAX program entry, my M-1 is out of balance.
The problem may be the result of the way the question about PPP loan was answered.
If the PPP loan is forgiven, you do not report the loan as income. Here are a few questions that might help give some resolutions based on possible answers.
To fix the problem go back to where TurboTax was asking you the questions about PPP loan and answer the question NO. Answering No to the PPP loan questions should fix your problem.
If this does not fix the problem, have your tried to call TurboTax Live. There are experts answer the phones that may be able to help you fix this problem.
Thanks so much for your input. I will look into this. Originally, I had received PPP Loan 1 in 2020 and Loan 2 in 2021. Both were forgiven in 2021. I had recorded both as Paid-In Capital, so my Equity went up. Based on your input, it seems that I should have recorded it as Income??
Correction: Originally, I had recorded the loans as Loans Payable. Once forgiven, I debited loans payable and credited Paid-In Capital.
@SP-Jenn The entry you made to Paid-in Capital should have been to Other Income.
On your S corporation return, you would report it on schedule K on line 16(a) as Other Tax-Exempt Income.
Confused by this answer. I recorded the 2020 PPP loan as debit to cash and credit to liability, reflected on balance sheet ending 2020. Forgiveness of loan granted in 2021, entry to record was a debit to the liability account to remove contingent liability with a corresponding credit to Add'l paid in capital.
Now turbo tax is asking if there was a 2021 loan forgiveness, which indeed there was. When I answer "yes" to that question, a book difference is reported in M-1. Now you're suggesting answering "no" to that question, which is not true, which would correct the error, however, would that be a red flag that could trigger adverse consequences?
Thank you
When you recorded the forgiveness of the loan, you should have posted the offset to Other Income, not paid in capital. It is book income, but reported as tax-exempt income on your tax return, on line 16(a) or 18(b) of schedule K, depending on which return you are preparing (form 1065 or 1120-S.)
If you report it that way, you may not have the issue with your M-1 schedule.
Did you figure out how to get your return to work with the PPP being in the M-1? I am out a balance by that exact amount and can not figure out what to do besides just removing anything to do with PPP?
Your return being out of balance is a known issue 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:
@hsimmen
I tried the above work-around. First the only way my Balance Sheet and Retained earnings balances is if I have my PPP of $23000, entered in as Other Income. This was forgiven in full in 2021. I did the work around, exactly as specified. On 1120S line 5 is the Other income that I entered which results in the Ordinary business income on line 21, agreeing with my books. On the 1120S Page 2, line 16b has $23000, 16c also has $23000 which resulted from the work around. The balance sheet agrees. The M-1 shows line 1 income from 1120s , the PPP funded expenses shows up in 3b after Travel & Entertainment. The total on line 4, = total of them both, (which is really adding the $23000 in twice, once in my Other Income and the work around) line 5 PPP loan forgiveness = $23000, as well as the total on line 7. Line 8 is back to my Net income loss per books. M-2 column a shows PPP funded expenses as a neg $23,000, resulting in a loss on line 8 for balance at end of tax yr. In column d other adjustments line 3 shows 23,000, There is no negative in row 5 in column d, it is in column a.. The resulting total in column d, is totally foreign to anything on my books. On to the K1 - 1 Ordinary business income is my book income (only because I entered the $23000 in Other Income to make everything balance. 16 B is $23000, 16 C is $23000 and D16 D is my Distribution. Is any of this correct, or do I need to take the $23000 out of other income, and then nothing else agrees to my books? Thanks.
The PPP loan is not reported on your return as income except as the Other Permanent Income Item as listed in my previous post.
Per the IRS Instructions for Form 1120S, Schedule K & K-1 for Line 10 Code H Other Income (Loss):
Amounts related to the forgiveness of PPP loans are disregarded for purposes of this line.
When you complete the information on the Schedule M-1 worksheet, Schedule K and K-1 are appropriately populated for the tax-exempt income.
Then if I remove the $23,000 from other Income, the Balance Sheet and Retained Earnings do not Balance, in addition, the Review brings up the Balance sheet errors and when going to Forms, it says the 1120 is not done. How would I handle all of those things?
You should report the PPP income on line 16(a) as Other Tax-Exempt Income if you are filing a form 1120-S. So, I think you had it reported correctly based on your first post.
Hi @AliciaP1 ,
I have the same problem after following your suggestions about adding the PPP forgiveness in the "Other permanent income items", and "other permanent expense items". The K1 form now has 16(B) and 16(C) with the same amount of PPP forgiveness. I'm wondering how to remove the duplicate 16C?
Thank you.
Hi @DD-DB111 ,
I'm having the same situation as you. I'm wondering if you have removed the 16C on the K-1 form? Since 16C is a "nondeductible expenses", I'm concerned that it might increase my personal tax return's income.
Thank you.
It is unfortunate that there are so many answers that completely contradict each other. If Intuit is creating software for tax returns, shouldn't they be responsible to provide a definitive answer.
To Sam_In No Sam, I didn't, I ran my K-1 through Turbotax personal and having the PPP on lines 16B & C did not make a difference on my return, so I left it alone. Not sure if that is correct or not, but that is the way I e-filed it.
I echo Rebecca's sentiment--this topic has gone in many circles and there doesn't seem to be a solution that one can have confidence in. Anyone want to give a definitive answer?
PPP Forgiveness and the creation of tax-exempt income that could be offsetting expenses reported in a prior year makes for complex accounting and tax situations. TurboTax Business is accurate for Partnership returns and TurboTax Self-Employed and TurboTax Home & Business are accurate for Schedule C filers with PPP loans. Unfortunately, there is a known issue, in TurboTax Business for S-Corp filings, that does not report the PPP loan forgiveness correctly. We have provided this help article so you can enter the workaround on your S-Corp return so it can be filed correctly. The steps are valid whether you have imported your information from Quickbooks or not.
How do I change a PPP loan imported by QuickBooks to nontaxable income for my S corporation?
@SteveArnold
AliciaP1, has this error been fixed? I filed my return with incorrect information, and now I need to correct it and file an amended return. I'd like to get it right and the PPP Forgiveness seems to be double counted, even after changing the interview question to "no".
Hi,
Now I'm confused. I'm using TurboTax Business. Shall I follow your "workaround" (answering no and add a permanent income entry) in your earlier post in this same discussion?
Yes. There will not be a change to the system for this tax year so you need to do the workaround in order to report the PPP forgiveness correctly.
See PPP Loan for the detailed steps.