CA COVID Relief Grant S-Corp

[DM007]

Hi,

I have an S Corp and use TurboTax Business desktop version.

How do I enter the $15,000 CA Relief Grant I received in 2021?

As I understand it is taxable on the Fed return, but tax-free on the CA state return.

How do I enter it so it increases my cost basis on my K1 and then not be taxable on the state returns?

Your help is greatly appreciated

Thanks!

[GeorgeM777]

You are correct in that your CA relief grant is taxable income on your federal return but not taxable income on your CA state return.   If you have not completed your business return, you will need to do that first so that your Schedule K-1 will be accurate.  Because the CA relief grant is taxable on your federal return, and because, your share of your businesses taxable income increases your basis, when you complete your business return, your basis as reflected on your Schedule K-1 should reflect the increase from the CA relief grant.  

When you prepare your CA return you will likely be adding your CA relief grant on line 8f of CA 540 in order that the relief grant, which was taxable on your federal return, will not be taxable on your CA return.  In this regard, the CA Franchise Tax Board states the following about adjustments to your CA return as those adjustments relate to the relief grant program.

"Small Business COVID-19 Relief Grant Program – California allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the COVID-19 Relief Grant under Executive Order No. E 20/21-182 and the California Small Business COVID-19 Relief Grant Program established by Section 12100.83 of the Government Code. If you included any amount as income for federal purposes on line 8, column A, enter the amount on line 8f, column B." (underline and bolded text added)

As a follow-up to the previous post, and in response to your recent post about deducting the amount of the COVID Relief Grant on line 12 of CA Form 100 S, yes you are correct, in that the CRG can be deducted on line 12.  The CA Franchise Board in their 2021 S Corporation Tax Booklet, at page 19, states the following with how to this amount should be entered:

"Small Business COVID-19 Relief Grant Program. California allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the COVID-19 Relief Grant under Executive Order No. E 20/21-182 and the California Small Business COVID-19 Relief Grant Program established by Section 12100.83 of the Government Code. If the corporation included any amount as income for federal purposes, deduct the amount on line 12."  (underline and bolded text added)

@DM007

[Edited 2-09-2022| 4:45 pm PST]

[DM007]

Thanks for the response.

After posting this question on TT, I did additional research on the internet and found this answer on Spidell @Caltax.com, saying to add the CA  Small Business COVID-19 Relief Grant on the Line 5 “Other income” line on the 1120S and then deduct it on the 100S Line 12 “Other deductions” line.

Are both ways ok?

I appreciate your feedback.

[DM007]

@GeorgeM777 , I re-read your question. Just to be clear, the grant was for my S-Corp.

Are you saying that the grant should be added on my business return Form 1120-S (I'm assuming Line 5 "Other Income") and then subtracted from my personal CA 540 (and not business) return, line 8f?

By adding the $15,000 CA Grant on form 1120-S Line 5 "Other Income", it increased the taxes owed by my S-Corp to the CA Franchise Tax by an additional $225 (1.5%).

Wouldn't it be better to also deduct the CA Grant Relief on my CA business return Form 100S Line 12 "Other Deductions" to avoid unnecessarily paying an additional $225?

Please let me know your thoughts

[DM007]

@GeorgeM777 . Thanks for confirming the question in my previous post.

I deducted the COVID Relief Grant on line 12 of CA Form 100 S, but it did not show on my K1.

Just to confirm, in order to get the deduction, I’ll have to add the CRG on my personal tax returns line 8f of CA form 540, right?

Thanks for your help!

[GeorgeM777]

Let me ask, regarding CA Form 100 S, given that you subtracted the CRG from net income on Form 100 S, did the net income that flowed to your Schedule K-1 include the CRG?  In other words, the CRG was added back to your Schedule K-1 income.  Follow-up with any additional information you can that does not include personal identifiable information. 

Upon further review of Schedule CA to Form 540, the CRG would get entered in Section B, line 8z, Column B.  Section B to Schedule CA to Form 540 concerns additional income that comes from Schedule 1 of your Form 1040.   Income on Schedule 1 of your federal return is additional income subject to federal income tax.  However, while the CRG is considered taxable income on your federal return, we know that CA has specifically exempted CRG from any state income tax.  Thus, Schedule CA to Form 540 is the form that CA residents use to enter CA adjustments to, among other things, federal income tax.