CARES act 6 Months SBA Payments - Tax-Line Mapping

[PatriciaV]

@micklsu

The SBA Payments are considered "Other Tax-Exempt income" as a permanent tax/book reconciling item in the Other Adjustments Account on Schedule M-2. This tax-exempt income will increase shareholder basis in the S-Corporation, allowing the shareholder to deduct any losses, if applicable.

1. Go to the forms section, open Sch M-1 Wks.
2. Add the total SBA payments under Other Permanent income items in the Per Books column, using an appropriate description.
3. Open a Schedule K-1 and verify the allocated portion for that member is shown on Line 16 using Code B.
4. Confirm you have no form errors (red check marks).
5. Save your return.
6. Run Federal Review to be sure there are no errors.

[Achievement Engineering]

I wonder if this question ever got a satisfactory answer.

I am having to do the same for our 2021 tax return. - the SBA paid 6 months of loan on our behalf.   Our asset is not big enough to have to enter the balance sheet numbers.  Still, my question is:  since this income is non-taxable, do I have to report it on our Tax return.  (We have a partnership filing on the 1065 Form.) And  If we have to report it, WHERE should it be entered?  As on Turbotax, Business, there  seems to be no place to enter it during the interview.  Thanks first.

[RobertB4444]

@Achievement Engineering  This is not income.  It is a loan.  Loans are not taxable.  In this case a portion of your loan was forgiven - still not taxable.  @PatriciaV gives very good directions for where to enter this on your tax return so that it will show up in your balance sheet.  That is the only place on your tax return that it needs to be entered.

[Achievement Engineering]

Thank you for your response.  Just like the person who started this question, and I understood his question completely because it is the same situation with us:

Again, This is NOT a loan. and NOT a forgiveness of loan. It is SBA paying on our behalf 6 months of our business mortgage (principal and interest) as a result of the CARES Act.  Since our principal was paid down as a result, the amount is an income to us, but it is NOT taxable.   @PatriciaV's respnse does help in terms of where to report it.  I found it on our Form 1065 Schedule K, line 18b, 'Other tax-exempt income'.  That's where we report it.

[Deborah1967]

The difference goes to your equity.  It is not a liability, and it is not taxable income.  You will have to adjust your equity accounts on page 4 or 5 of the return as a book item not affecting the tax return.

I don't use turbo tax, so I have no idea how that software processes that, but my professional software has a place to input the different types of grants, loans, payments, credits etc.  However, I have to tell it not process the amounts to the balance sheet as I already have my balance sheet adjusted for them.

Look for a place to adjust "income recorded on books but not included on Schedule K' section in your software.

Good luck,

Debbie

[Deborah1967]

There were so many types of loans, grants, credits, etc., it is confusing knowing which ones people are asking about.  But the one I am referring to is the SBA Cares act where they pay your payment for up to 6 months on your behalf.  You are correct, it is not taxable.  Adjust your equity