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How do I change a PPP loan imported by QuickBooks to nontaxable income for my S corporation?

SOLVEDby TurboTax8Updated March 15, 2022

Paycheck Protection Program (PPP) rules allow loans received by S corporations to be forgiven up to the amount of certain eligible expenses, including payroll, rent, and utilities. The IRS requires S-corps to report PPP loan info, because forgiveness creates tax-exempt income, which affects a shareholder's basis in the S-corp.

When QuickBooks imports a PPP loan into TurboTax, it treats the amount as other income instead of nontaxable income, so the amount gets added to taxable income

Here’s how to recategorize your PPP loan as nontaxable in TurboTax Business:

  1. Open your TurboTax Business software and continue your S-corp return
  2. Select the Business Info tab
  3. Step through the interview until you reach the screen Forgiven PPP Loan. Answer No and Continue
  4. Switch to Forms Mode by selecting Forms in the top right, next to Calculator
  5. In the left column, locate and select PPP Loan Stmt. If you don't see the form listed, there are two other ways you can access it: 
    • In the left column, select Form 1120S p3-5. Scroll to line 16b and select the QuickZoom button
    • In the left column, select Open Form and search for ppp loan. Select PPP Loan Stmt: PPP Loan Forgiveness Statement, then Open Form
  6. When you see the PPP Loan Forgiveness Statement in the right column, locate the Smart worksheet and enter the amount of tax-exempt income from PPP forgiveness treated as received/accrued in the box provided
  7. In the left column, select Sch M-1 Wks 
  8. On the line for Other permanent income items, enter Forgiven PPP loan and enter the amount in the Per Books column
  9. Next, select Schedule K-1 for each shareholder in the left column. Make sure the Forgiven PPP loan amount is on line 16b
  10. Select Step-by-Step in the top right to switch back to the interview
  11. Select the Federal Review tab to run error check

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