PPP loan worksheet question for s-corp filing (1120-S)

[kvkeee]

Mine is a 2-member LLC filing as S-Corp. My business received around 20000 USD PPP load and it has been forgiven in 2021. Now facing this question while filling the business info in Turbo Tax Business 2021.

"Treat Tax-Exempt income resulting from PPP loan forgiveness as received or accrued"

(1) as, and to the extent that, expenses are paid or incurred

(2) when forgiveness is applied for; or

(3) when forgiveness is granted.

Not sure which option to select. I didn't even understand what is being asked in this question. Please see the attached screenshot.

Changing these options is not changing any numbers, not the K1 amounts. 

Can anyone explain what this is? Which one to select?

Thank you. 

[PatriciaV · Accepted solution]

This question is asking how you recorded the tax-exempt income from the PPP Loan forgiveness.

1. Did you book the income as you paid the expenses?

2. When you applied for forgiveness?

3. When you received notice that the loan was forgiven?

Most businesses wait to see how much of the loan is forgiven before recording the tax-exempt income, so #3 would be the best choice. If all three of the choices occurred in the same tax year, it doesn't really matter which you choose.