Will Turbotax handle forgiven PPP loan?

[bbhesse]

I know you are correct but the bottom link won't open.  Can you look at it and see if the link is correct?

[suenjgdinc]

I just went to irs.gov and in the search box put in PPP deductible.  The very first article that comes up has a link in it to take you to the IRS code that clarifies it.

[timsauve]

I'm confused. The NC-K1 I got from our accountant  has the loan forgiveness amount on Line 2 Additions to income. But I see no way to enter this in TT. 

This NC.gov site seems to say this amount is taxable:

https://www.ncdor.gov/taxes-forms/individual-income-tax/paycheck-protection-program 

We are an PLLC filing as an S-corp, so this example would seem to apply, wouldn't it?:

"Example 5: Taxpayer is a shareholder of an S-Corporation. The S-Corporation receives a PPP loan and uses the loan to pay employee wages and business office rent. The PPP loan is subsequently forgiven. The S-Corporation does not include the PPP loan forgiveness in federal taxable income. The S-Corporation is allowed to deduct the business expenses paid using the forgiven PPP loan proceeds (employee wages and office rent) on its federal return. On its N.C. return, the S-Corporation is not required to make an addition for the amount of the PPP loan forgiveness. The S-Corporation is required to make an addition on its N.C. return for the amount of the business expenses deducted on the federal return that were paid with the PPP loan proceeds. This addition is included on Schedule I, line 1 of Form CD-401S (S-Corporation Tax Return). Taxpayer then uses the K-1 issued by the S-Corporation to file their N.C. tax return."

[JamesG1]

@Vizsla1

The Journal of Accountancy states:

CARES Act Section 1106(i) explicitly excludes the forgiveness of PPP loans from gross income.

Text of the CARES Act is found here.

The Paycheck Protection Program (PPP) was created by the CARES Act and has been a very complicated to follow in less than a year.  This TurboTax Help is useful.

Under certain criteria, and if you use the funds as directed by the SBA, the loan may be completely or partially forgiven.  .

Reported on an 1120S, it is reported as tax-exempt income and may require an adjustment on the M1.

[timsauve]

Makes sense, of course, for FEDERAL tax return. But the CARES Act would not address NC taxing the forgiven amount, per the link above.

I'm confused. Am I reading the NC post correctly? And, if so, how does one enter the NC K-1 into TT?

Thanks!

[ml53]

how would you enter it into a 1040 for LLC Sole Proprietor?

[Critter-3]

You don't ... the PPP is not taxable income and is not reported on a Sch  C   HOWEVER  you do get to deduct all the expenses it paid.  A weird legal "double dip".

[timsauve]

That is correct on the FEDERAL return. But not the NC state return. For NC, one has to add back to income the expenses written off on the federal return (taking away the double dip for state), and then pay income taxes on that amount.

My question had been how to note that, since Turbotax apparently doesn't understand that difference... But I was able to figure it out - I had to open the K-1 worksheet INFORMATION FORM and was able to add a state addition to income there. And then everything was correct on both the federal and state returns.

[ngimon]

Thanks for posting.  I have the same issue.   Fed recognizes, but NC does not, and the K1 that I got shows the amounts, but there is no corresponding area on TT for NC

[simsteu-]

There is an additional problem when the yet to be forgiven loan on the Federal form shows as an L/T liability yet the CA state forms count the PPP loan as currently taxable "other income". Now the CA balance sheet doesn't match the Fed.  Is TT certsin that California does not allow the same forgiveness as the Federal? Can this be reconciled in notes to next year's M1/M2 section or should  amended 2020 forms be used?

[simsteu-]

In CA the assembly bill AB-80 was passed to provide conformity with federal income tax law. However, the original eligibility requirement of the CARES act remains. An ineligible entity  means a taxpayer that either:

A. Is a publically-traded company

B. Does not meet a 25% or more reduction in gross receipts in 2020 as compared to the same (8 or 24 week) period in 2019

[simsteu-]

I tried a different adjustment for the "Other Income" created when I debited out the liability. I created an offset account (expense) in the debit section of my P&L. This made it all balance and flow through the state forms until I went back to repair the balance sheet. Now I have an A/P (phantom) traded for the loan amount which still needs to be explained in the M1 section. I'm not sure if this is any easier, but at least it left the reconciliation until the very end.

[joerosenbaum]

I use QuickBooks for my Sub-S and TurboTax Business for tax return purposes. Is there an Intuit best practices solution to allow TurboTax to seamlessly upload the appropriate info for PPP loan forgiveness?

[Critter-3]

If you properly enter the PPP loan as a loan in the QB program and transfer the funds to the checking account then the bookkeeping is correct and so will be the return.  You will have to make an adjusting entry to balance the books on the return. 

[Rock_1]

I believe the PPP forgiveness is also a TT issue and shortfall for the following reason:

The IRS requires certain information relating to the loan forgiveness be provided in an attachment that accompanies the tax return as stated in the Schedule 1040 Instructions (Page 23) under Income for Self-Employed individuals (my area of interest).   There's a similar requirement mentioned in instructions for Forms 1120 (S Corps) and 1120-S (C Corps).   There's no prompting of this requirement within TT and no means to have this attachment contained within the electronic filing of the returns through TT.   The PPP forgiveness is tax-exempt, but we do have a reporting requirement as a recipient and tax filer.  Back to TT for an explanation and hopefully an update to the software.