Your suggested approach would be fine if I were filing as an S Corp rather than as a Sole Proprietor. As an S Corp I could both recognize the Income and then deduct the equivalent amount of expense as Wages. However, as a Sole Proprietor I'm not allowed to pay Salary/Wages to myself nor deduct them. Under PPP rules, the money can be used to pay for Wages, Home Office Mortgage Interest, Home Office Utilities. The amount of money the business paid for Mortgage Interest and Utilities is minimal and totally insufficient to offset the PPP loan I received. As a result, I'm faced with having to recognize the PPP Loan amount primarily as extra income with effectively a minor expense offset. I could theoretically recognize only the amount of the loan used to pay these minor expenses and not report the balance received, but I question whether the state will accept this.
