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.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
