This is my Final tax return ('22) 1120S I don't know how to report SBA loan on K1? Please Help

[ESbusiness2030]

Hello tax expert,

Hope you can please provide some tax guidance.

This is my Final tax return ('22) . Need to efile 1120S (yes, put extension)  I don't know how to report SBA outstanding loan on K1? Closed my biz in Dec '22 with zero balance, NOL and the SBA gave me a $25K Loan not able to pay back. I think, I'm still under obligation to report on Balance Sheet or how? TT shows there's no need for Balance S, if less than $250K and that is me.  I thank you in advance for your insight.  Using TT Desktop business edition...     [PII REMOVED]

[KristinaK]

What happened to the loan? Was it forgiven? Are you still obligated to repay it personally?

If you are not required to report the balance sheet on the return (both federal and state), then you might as well not report it. 

You probably still want to figure out if this loan will affect your basis as a shareholder. It may affect the taxability of distributions you made. It may also affect how you will fill out (if required) form 7203 on your individual tax return. 

[ESbusiness2030]

Hi Kristina,

Thank you for responding.

Just to clarify this is not PPP it was EIDL so Loan is still due. However, I had S corp so legally it was taken under EIN as company not as contactor/self employed. Loan was under $25K so no need collateral or sign as personal guarantee .. The State has been notified since it was dissolved and IRS was informed with F966 there is NO Assets. My K1 showing a NOL that I don't think is right because it comes from the Loan money not from revenue, this is why I'm so confused in how to properly (tax) report it. . Unfortunately, many of my customers went out of business before me but I was able to survive due the Loan and with the hope to revive it. It seem there other business owners with similar situation like me and no clear answers.  

Ps...No distribution only pay myself payroll and  Loan used to also pay business expenses.

[KristinaK · Accepted solution]

Thank you for clarifying, @ESbusiness2030  

I think by the NOL you mean you have a negative number in box 1 of your Schedule K-1. And that would be correct if your expenses were higher than your revenue. Even if expenses were paid by the loan money. 

As for the loan, since it doesn't sound like you've personally assumed it or have an obligation to repay it, if you were reporting a balance sheet, I would just leave it under long-term liabilities. But again, if you are not required to file Schedule L (balance sheet), I would suggest not filing it. And you are not required to file it if both your total assets and total receipts are less than $250,000.

If you had no distributions, then you will not have anything in box 16, code D of Schedule K-1. So, basically, the loan is not reported on your K-1, and thus, your individual tax return.

A word of caution taking a loss deduction from box 1 of the K-1 on your individual tax return. If the loss exceeds your basis in the S Corp , the difference should be reported on Schedule D as long-term capital gain. Read more about basis here. 

[ESbusiness2030]

Hi Kristina,

I truly appreciate you given me that caution and I am looking into it. 

Once again, I have Capital investment (no loans-draws) but my business was Not able to repay me. Yes, the Loss NOL showing box 1 is higher.

Thnak you so much for your insight.