You report the forgiven PPP loan as nontaxable income. In TurboTax Business for an 1120S member:
- Across the top of the screen, click on Federal Taxes.
- Click on Balance Sheet.
- Enter Total Year-end Assets. Click Continue.
- Click No, I want to complete my balance sheet. Click Continue.
- Under Your reconciliations and balance sheet, click on Edit to the right of Income reconciliation.
- Click No, I’ll enter a different book income. Click Continue.
- If nontaxable PPP loan is $10,000, taxable income for the year is $59,000, so book income must now be $69,000. Click Continue.
- At Your reconciliations and balance sheet, make sure all three schedules are in balance.
- Click on Forms mode.
- Click on M-1 Worksheet. The forgiven PPP loan will be listed under Permanent Items (tax-exempt income).
- Click on a K-1. The forgiven PPP loan will be listed under line 16 code B.
There may be other issues in your tax return that would cause the forms to be out of balance. This treatment allows basis to be correctly reported.
States vary on their treatment and they are changing rapidly.
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