Turbotax Business 2020 does not ask any questions about possible PPP loans that were received. Is Turbotax going to get an update that will address this, or are we on our own to figure out how to deal with forgiven PPP loans? Seems like a glaring hole in TT.
PPP loans is a bookkeeping issue NOT an income tax issue.
In your books you will either :
1) count the loan proceeds as income and take the expenses you paid with it as deductible expenses like normal.
OR
2) enter the loan as a loan on the books and once it is forgiven you must also reduce your expenses by the amount of the forgiven loan.
Either method is correct as long as you are consistent in it's application ... option 1 is the easiest for most folks.
Does this take into account the recent legislation, which seems to allow the "double-dip" benefit (i.e. the forgiven loan is NOT to be considered a portion of business gross income AND the expenses it paid are tax deductible)? The current TT Business software doesn't seem to currently account for this, as it throws off my balance sheet calculation not to report the funds at all -- after all, I received the money.
No glaring hole in TT.
As noted before, TT is not an accounting / bookkeeping software.
Your balance sheet is prepared based on your books and records.
You will need to prepare / include an adjustment in the Schedule M-1 section of the software to handle the difference between book and tax. No different than any other book/tax differences.
What you have here is income for book purposes NOT income for tax purposes.
I have not heard of the situation you describe ... double dipping is normally not allowed. Please post where you read this option.
Well I see I may have old info ... but double dipping seems to be allowed after all ... https://www.uschamber.com/co/run/finance/tax-implications-of-paycheck-protection-loans#:~:text=Does%20a%20forgiven%20PPP%20loan,and%20is%20not%20taxable%20income.
In this case in your bookkeeping the loan is not income so you would negate it in your books and still get to deduct the expenses it paid. I wonder if anyone in congress has a single brain cell to share among all of them.
This forgiveness is NOT entered anywhere on a tax return at all ... it is only a bookkeeping entry.
To Rick
Thanks for your reply. I will look for how to manually enter the M-1 adjustment, but I am not particularly savvy. TT Business always asks me to reconcile my balance sheet, so whether it is book or tax it seems I have to get it right on the tax prep software in order to complete it.
(And this extremely common but heretofore unprecedented situation would seem to call for a guided process within the program, in my opinion. I would echo the OP's hope that an update is forthcoming).
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).
You will report the PPP funds received as income for your books and records; as you noted, you did received the funds (cash) and it needs to go somewhere.
Originally you would have debited cash and credited Triple P loan.
When the Triple P loan is forgiven, you will debit the loan account (to zero this out) and then credit income. You can call it "grant income" "Triple P income" "PPP income"; whichever language works for you.
This should balance out your balance sheet.
Then once this transfers to TT Business, then that is where you need to make the adjustment for the M-1. As stated previously, this adjustment is income reported on the books not on the tax return.
I believe this answer is wrong. The PPP loan is not counted as income. I am also wondering how to show this on turbotax. IT is not a "dumb question". If we deduct the PPP loan from payroll, then payroll will not match 941's. That seems like it's a set up for an audit. Still searching for an answer. Been searching for hours.
So many of these responses sound like I am supposed to be a tax pro. I am not a tax pro, I'm a tiny little business owner who can't afford a bookkeeper or a tax person, so I have to do all this on my own. Just like millions of others in the US.
As it turns out, it sounds like the legislation Congress passed right before Christmas changes everything. The PPP loan is not income, all the expenses related to it are deductible. Congress may have finally done something good and smart.
I was just corrected, we can deduct the expenses! Yea. Thank you for the update!
Apologies if this is too simple a question. If we received a PPP loan and it was forgiven, I understand it is not taxable. We are a partnership so basically all of our income goes to partners. So how do I record this in business taxes and then is it taxable for each partner. We are actually talking about a small amount of money. Thanks for your help.
If your PPP loan was forgiven, then you don't report it as income on your partnership tax return. If you used the funds for qualifying expenses, they are deductible as they would be otherwise. So, there would be no additional entries on your partnership tax return, simply leave the PPP proceeds off the return. It is not reportable on the partner K-1 schedules, as it is not taxable to the partners.
TT asks if any loans have been forgiven. I put the forgiven PPP loan amount in this cell and I am having the same problem with my balance sheet. You would think TT would have this all addressed so we wouldn't all be having the same problem figuring out how to address it on the returns.
It is income. Just not TAXABLE income. So your retained earnings will be off in the tax software. That's why the M-1. Hope that helps.
I ultimately made an adjustment for the forgiven amount on the M-1 section and I think that took care of the problem.
Gary of all the ways to treat PPP forgiveness that I have seen and read, an M-1 adjustment is I believe the correct method. Question - in the TT business software I suspect that you went to the "Forms" section and went to the M-1 worksheet and in the income section under the heading "Expense Items" entered PPP Forgiveness (under Other Permanent expense items) for the $$$ value under the Per Books Column with nothing in the Tax column (its grey'd out) thereby creating your book / tax difference. I was able to balance my balance sheet 100%, the book income was correct to include both PPP Forgiven loan as income and associated expenses it was used to pay and c. my taxable income was correct to include the 50% disallowed for meals as well as now the PPP forgiveness.
Enter forgiven amount under "Other Permanent Income" items, not "Other Permanent Expense" items. This should square book income with tax income.
PPP was issued in 2020. Forgiveness will happen in early 2021. For a partnership entity,
a. Where to enter in Turbo Tax Business? As loan or something else?
b. How to account for salaries (distribution) paid from it to partners? Or As any expense ?
c. Will partners will have to pay FICA and taxes on it in their individual tax return as any regular income or do they have to do anything else? I believe some banks have cut FICA before distributing money as PPP.
d. In 2021 will need to figure out how to report it in Turbox Tax as forgiven loan. I can wait on it. 😀
it would have been very helpful had Turbo Tax issued any advisory for various possible entries in Turbo Tax on PPP. This is one of the most common question today. Cannot just say it is is book keeping issue and not tax issue. Or they should develop a wizard to derive to a correct answer. Thanks.
When the loan was received it would have been posted to cash and loan liability account (a title you likely made for your liability account). Keep in mind this is not income to the partnership at the time of the loan, read further about the forgiveness.
Any expenses paid from these loan proceeds are processed like any other cash expenses in your business. The expenses are not separated out for the books and records of the business even if it's necessary for your loan forgiveness.
Partners will pay any taxes due on their personal returns based on the income that flows over to their individual K-1s. This means they will pay their self-employment tax as usual. They should not receive W-2s as partners in a partnership.
2021 (or 2020 if you already know the loan is forgiven)
The loan will become tax exempt income in 2021, should you be forgiven. At that point it is not a loan and does not have to be repaid. It would be an adjustment to the capital account and removed from the liability account, at that time. This is how you will record it on the 1120S return in 2021.
For more information you can use this link: Instructions for Form 1065
I must be doing something wrong. I put all my info in TT and everything balanced. I went to M1 worksheet to put in the amount of the forgiven loan under "other permanent income items" in the book column as a positive number. When you go to the bottom of worksheet, it shows computed net income to be greater by the forgiven loan amount. Everything is out of balance now. Income reconciliation, balance sheet and retained earnings are now out of balance by the loan amount. I'm not a CPA or a tax accountant. What do I do with this?
PPP forgiveness is completely tax free on a federal level and does not need to be reported on your federal tax return, but for most states it is taxable, so the funds that were used for expenses are not deductible. But it looks like TT does not have a simple way to handle this situation. Very surprising