In the 2021 online software there are questions relating to the timing of the PPP loan forgiveness which will generate a statement that is included with the 1040 tax return. I am a sole proprietor that received a PPP loan in 2020 that was 2.5 x my 2019 net profit monthly amount, used that monies as owner's compensation replacement in 2020, and filed my 2020 return with the PPP loan on my balance sheet. I filed for forgiveness in early 2021 and received full forgiveness later in 2021, and am a cash basis business. What are the ramifications with the three different timing options? Would I have to amend my 2020 return if I selected when expenses were incurred (2020) therefore I should select either when I applied for forgiveness or received forgiveness? And when they ask if I received forgiveness by the tax filing, which year are they referring to 2020 or 2021? I just need some help in how to answer this to where I don't cause any additional tax or accounting issues. It's very confusing. Any assistance is greatly appreciated.
The simplest solution in your situation is to choose the option to report the PPP Forgiveness Income when forgiveness is granted (2021). Your expenses have already been reported on your prior year return. You didn't include the PPP Loan Forgiveness last year (2020). A cash-basis taxpayer reports income when received. Therefore, the third option is the best.
The question "Was forgiveness granted as of the date the return was filed?" refers to the filing date (probably April 18, 2022) and not the ending date of the tax return (12/31/2021). Your answer would be "yes."