PPP Loan Forgiveness

[csanford2]

How is the PPP Loan Forgiveness  handled for tax purposes in an SCorp given the December 2020 ruling?  Where is it discussed within TurboTax for Business?

Thank you!

[ColeenD3]

The Paycheck Protection Program (PPP) is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which consisted of government-backed loans to help small businesses and other eligible applicants continue covering payroll costs and certain operating expenses during the coronavirus (COVID-19) pandemic. These loans were available to:

• Small businesses with less than 500 employees
• Sole proprietorships
• Independent contractors
• Eligible self-employed individuals

Under certain criteria, and if you use the funds as directed by the SBA, the loan may be completely or partially forgiven. Go here to learn about PPP loan forgiveness.

For 1120S, assuming the debt was forgiven, you would answer "yes" to the question on line 12. It does get entered on line 16 of schedule K and the steps you took have allowed you to reconcile your balance sheet.

[csanford2]

Thank you for your answer.  You refer to line 12 - can you please tell me what form that refers to?  Also you refer to line 16 on Schedule K.  Is that Schedule K-1?

Thanks for your help!

[ColeenD3]

Enter the amount and check yes on Line 12 of Schedule B on Form 1120-S as a debt that was forgiven. The PPP Loan amount also is reported on line 16, code B of the Shareholder K-1 as non taxable income that affects shareholder basis.

Enter the PPP Forgiven Loan amount as Other timing Income item on the Schedule M-1, it balance out the income tax/book differences and also move it to Schedule M-2 as an addition from the M-1 and as a negative Distribution to balance out the M-2 with the books.  

[csanford2]

Thank you so much! That was very helpful.  Do you enter the PPP Loan amount directly on line 16 of the K-1 or is there a worksheet that is filled out that flows over to Line 16 of the K-1?

Thank you!

[joverheul]

@ColeenD3  Thank you for your insights regarding the M-1 and Form 1120-S entries to account for 2020 PPP Loan Forgiveness.  After completing these steps, the Schedule K-1 still seems to reflect the non-taxable loan amount on Line 1 of the K-1 Schedule (i.e., Ordinary Business Income includes the full PPP loan amount).  Is this correct?  If yes, where should the non-taxable amount listed on K-1 Line 16b be reduced from taxable / gross income on the Shareholders 1040? 

[lec4]

How should the ppp loan forgiveness be entered on form1120 

[JamesG1]

You report the forgiven PPP loan as non-taxable income.  In TurboTax Business for an 1120S member:  

• Across the top of the screen, click on Federal Taxes. 
• Click on Balance Sheet.
• Enter Total Year-end assets.  Click Continue.
• Click No, I want to complete my balance sheet.  Click Continue.
• Under Your reconciliations and balance sheet, click on Edit to the right of Income reconciliation.
• Click No, I’ll enter a different book income.  Click Continue.
• If non-taxable PPP loan is $10,000, taxable income for the year is $59,000, so book income must now be $69,000.  Click Continue.
• At Your reconciliations and balance sheet, make sure all three schedules are in balance.
• Click on Forms mode. 
• Click on M-1 Worksheet.  The forgiven PPP loan will be listed under Permanent Items (tax-exempt income).
• Click on a K-1.  The forgiven PPP loan will be listed under line 16 code B.

States vary on their treatment.