Will Turbotax handle forgiven PPP loan?

[lmz91606]

I have a similar issue to some others on here but my head is swimming.  I am in CA and received my PPP first and second draw loans during that non-conforming period in 2021. I meet the 25% qualification.  I entered the PPP forgiveness in the pertinent section for Miscellaneous Income in the Federal Tax section. I understand that this is not taxable income for the Feds.  

I am confused about what to fill out on the State return on the "Other Adjustments" page. If I used the PPP funds as  owner compensation, do I need to put the full amount of my PPP loans here and therefore gets taxed on them?  I have read through this entire thread and I just can't figure this out.  

[gfurtado]

In regard to CA state taxes read the AB 80 bill and see if you are required to pay taxes on this. TT is not clear on how to handle it, so what i would do if you need to pay taxes is like you said put it on the adjustments section. Wish one could just put the info into TT and it would figure it out, but that does not seem to be the case from what i have seen.

[GeorgeM777]

Yes, it appears the PPP loan you received is taxable on your CA return.  However, when you say that you received your PPP loan during the non-conforming period, do you mean you received your PPP loan after March 31, 2021 to June 30, 2021?  If yes, then you are correct in that California does not allow an exclusion from gross income for PPP loans forgiven due to the extended covered period after March 31, 2021 to June 30, 2021.  While you may be an eligible entity under CA law, meaning you are not, among other things, a publicly traded company, CA modified forgiveness of PPP loans.  In this regard, CA did not allow the exclusion from income of forgiven PPP loans received after March 31, 2021 to June 30, 2021.

If you excluded the amount from gross income for federal purposes, then this excluded amount will be entered on line 3, column C of Form 540.

@lmz91606

[lmz91606]

Thanks  George.  This is what I was afraid of.  I really never thought that CA would be taxing this as income until I saw it mentioned in one tiny little section on TurboTax.  Considering how many thousands of businesses this applies to, you would think it would be called out a little more clearly! It seems especially bizarre for those of us who are sole proprietors and used the funds as owner compensation, as allowed under the federal law.  We do not deduct that as an expense on our Schedule C, so there is no "double dipping" for us.  It's not like we got the loan funds plus the expense deduction for what we used the funds on. There is no expense deduction, just a taxation on the loan funds.  So weird, especially since AB80 goes into all the reasons they would not tax these funds as income, but then they do tax the loans paid out during those few months, which were meant to help the smallest businesses.  Baffling!  But I guess that's tax law!  

I did receive my loan draws during that period, one in April and one in June.  

@GeorgeM777 

[gfurtado]

Yeah, it doesn't make any sense why they are taxing during those periods and if you did not have a 25% decline in revue from any quarter in 2020 in comparison to the same quarter in 2019 in the prior periods then it is also taxable.. It is stupid that CA did not conform to the Federal on this. Before the AB80 came out it was all taxable no matter what, but they changed it.

[slsiener]

What do we do for 2020?  I'm just now filing.

[gfurtado]

If you filed your 2020 last year, then i would just leave it alone and report it on your 2021 tax return.

[slsiener]

I haven't filed my 2020 return.  Doing so now via 1040/schedule C.  How would I report?  Both the loan and forgiveness were granted in 2020.

[gfurtado]

You can report it on either your 2020 or 2021 tax return. probably be best to report on your 2021 tax return as TT has  no place to report on their 2020 tax software as they are a little behind on this. Hope this helps!

[JamesG1]

Report PPP loan forgiveness by following these steps:

• Go to Federal / Income & Expenses / Your income and expenses / Less Common Income / Miscellaneous Income, 1099-A, 1099-C.
• Click Start / Revisit to the right of Forgiveness of PPP Loans.

The Journal of Accountancy states:

Rev. Proc. 2021-48:  Timing issues

Rev. Proc. 2021-48 covers the timing of receipt of PPP forgiveness tax-exempt income. 

Taxpayers may treat such income as received or accrued when either:

• (1) expenses eligible for forgiveness are paid or incurred; 
• (2) an application for PPP loan forgiveness is filed; or 
• (3) PPP loan forgiveness is granted. 

@slsiener

[slsiener]

Thank you! 

Would these be the correct steps for a 2020 return?  Both loan and forgiveness occurred in 2020.  Return has not been filed yet.

[RobertB4444]

@slsiener  Those are the same steps for a 2020 return that has not been filed yet.

[gfurtado]

Yes, the steps would be the same. just not sure if the 2020TT has the PPP options Last time i looked it didn't.

[TeresaM21093]

WRONG INFORMATION.   PPP taxes are forgiven for tax purposes.  They are NOT taxable and therefore do NOT increase income or reduce expenses.  Other Covid benefits such as the Employee Retention Tax Credits, Transportation Grants are fully taxable and must be reported in the year of receipt.       

Still looking for how to informationally report on a Schedule C situation.  On an SCorp they are an M1 adjustment.  

[gfurtado]

I was referring to California tax, not federal taxes