Will Turbotax handle forgiven PPP loan?

[GaryRichards]

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.  

[clove1]

 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.

[GaryRichards]

I ultimately made an adjustment for the forgiven amount on the M-1 section and I think that took care of the problem.  

[OTBTATL]

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. 

[sansho1]

Enter forgiven amount under "Other Permanent Income" items, not "Other Permanent Expense" items.  This should square book income with tax income.  

[chaplot123]

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. 

[DianeW777]

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

• Excerpt: 
  • Nonrecourse Loans.  Nonrecourse loans are those liabilities of the partnership for which no partner or related person bears the economic risk of loss.
  • Tax-exempt income. Do not include any tax-exempt income on lines 1a through 8. A partnership that receives any tax-exempt income other than interest, or holds any property or engages in any activity that produces tax-exempt income, reports this income on line 18b of Schedule K and in box 18 of Schedule K-1 using code B.

[chaplot]

Thank you for detailed reply. Make sense.

[suenjgdinc]

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?

[gfurtado]

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 

[OTBTATL]

Respectfully I have to disagree with your response with regard to the following. Yes PPP is completely tax free and doesn't need to be reported. However on corporate forms 1120 and 1120S on Page 5 (I think) one has the M-1 Schedule  which is Reconciliation of Income (Loss) per Books With Income (Loss) per Return. One will need to somehow include your PPP forgiven loan here. For accounting purposes (not tax) in order to remove a liability (the PPP loan) from your balance sheet you'll have to debit the liability and credit income. Well if the income is not taxable it has to show up somewhere on the 1120 or 11202. M-1 is the location. For Federal purposes the expenses incurred using the PPP loan funds are still deductible expenses on 1120 and 1120S. I have not seen anything in my State that would lead me to believe that the State tax treatment doesn't follow the Federal guidelines. 

[gfurtado]

I'm not sure what state you live in and it varies from state to sate. CA does not conform to the federal guidelines and therefor is taxable.

[gfurtado]

In regards to the 1120 corporate returns you are correct.

[OTBTATL]

You are right. Here is an excellent article dealing with this issue. https://rsmus.com/what-we-do/services/tax/state-and-local-tax/income-and-franchise/ppp-forgiveness-a... "At first glance, determining whether debt forgiveness under the CARES Act is taxable in a state seems straightforward. In the 21 states and the District of Columbia that have rolling conformity to the Internal Revenue Code (IRC) the forgiven loans will likely not be subject to tax." The 21 States are Arizona, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kentucky, Maine, Michigan, Minnesota, New Hampshire, North Carolina, Ohio, Oregon, South Carolina, Texas, Vermont, Virginia, West Virginia and Wisconsin.

[bbhesse]

The PPP loan is not taxable as income to the partners and the expenses are deductible. 

https://advocacy.sba.gov/2020/12/28/advocacy-commends-congress-on-deductibility-of-business-expenses...