If I used funds from PPP, EIDL and another CARES act grant for my business, am I able to expense them on my taxes?

[codewarrior_777]

I'm trying to understand the clarity from the IRS regarding the PPP, EIDL and another CARES act grant I received (I received a $5,000 from the City of San Antonio from CARE act funds I believe).

If I used funds from any of these sources, am I able to expense them on my taxes? I'm a single member LLC with no employees besides myself.

My understanding is that they cannot be expensed, but since the legislation has changed I've come across some articles that they now can be. How is TurboTax approaching this this year for their clients?

This is from an article I found online:

"In the Act, Congress reversed the IRS position. Congress provided that PPP loan forgiveness and EIDL advances (which were up to $10,000 to each business that applied for an EIDL loan) would not generate any taxable income AND all the associated expenses paid with the PPP loan and EIDL advances would be fully tax deductible. In addition, the loan forgiveness will generate additional tax basis for investors in partnerships, S Corporations, and sole proprietorships, so the investors can deduct the additional pass-through expenses. Act Sec. 276 and Sec. 278. That Act contains some tax nuances for S Corporation investors (AAA accounts) and partners (special allocations), so you should consult with your tax advisor before filing your tax return."

[ThomasM125 · Accepted solution]

As it stands for now, the federal assistance is not taxable and the expenses are deductible. So, you don't add the stimulus payments as income on your tax return, and you deduct business expenses as you would normally do.

The local grant is taxable, however, so you enter that as "Other Income.""

[codewarrior_777]

Thank you! 

[rocky506]

hi,  i got PPP and aidl, also a cares act funding for my business, is this last one federal and NJ taxable? I did not receive 1099G, where should i enter this grand ? thanks lot, Pio

[ToddL99]

The CARES Act funding is taxable income unless otherwise carved out under an existing exclusion, such as if the provider is a 501(c) nonprofit. 

The Internal Revenue Service has confirmed that Provider Relief Fund payments made available through the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) cannot be excluded from taxation under a disaster relief exemption. Therefore, the payments do constitute gross taxable income, unless otherwise carved out under an existing exclusion, such as if the provider is a 501(c) nonprofit. 

Stimulus payments, however, are not taxable.

[John204]

To clarify that, PRF would most likely be a taxable grant (I haven't looked at it) but PPP and EIDL advances are not taxable. Expenses for PPP and EIDL advances are still deductible. 

[ThomasM125]

The PPP and EIDL advances are not taxable and qualifying expenses paid with those funds are tax deductible. Provider Relief Fund payments are taxable, unless made to a tax-exempt health care provider and used for tax-exempt purposes.

You can find more about this here:

https://www.irs.gov/newsroom/frequently-asked-questions-about-taxation-of-provider-relief-payments

[khollister53]

You did not answer how to enter the PPP loan amount on one's individual tax form so that carryover losses from previous years can be applied against it.

Example:

Forgiven PPP loan of $75,000 is tax-deductible. Listed on K1 as item 16, items affecting shareholder basis, as Code B, Other tax-exempt income.

Ordinary business loss from K1 is -50,000. 

Carryover loss from 2019 is $30,00

How would one apply $25,000 from previous losses?

How does TurboTax know that carryover loss from 2020 into 2021 is now $5,000?