Tuesday, June 11, 2024

How To Report Ppp Loan Forgiveness On Tax Return

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Is There Any Special Process Or Form For Amending Returns To Claim The Newly

PPP Tax. EIDL Grant Tax Affect. [PPP Loan Forgiveness] How to Report PPP & EIDL on Tax Return?

No, taxpayers should follow FTBs normal amended return procedures. However, if a taxpayer makes an election under IRS Rev. Proc. 2021-20 for federal purposes, California will follow the federal treatment for California tax purposes.

Additionally, FTB does not anticipate creating any new forms to implement AB 80, but we are in the process of updating line item instructions.

Coronavirus Relief Fund Grants

Learn about the taxability of grants funded by the CARES Act Coronavirus Relief Fund, including grants awarded by the Massachusetts Growth Capital Corporation , the Commonwealth, or municipalities.

My business received a grant awarded by the MGCC, or another Commonwealth or municipal grant funded by the CARES Act Coronavirus Relief Fund. Is this grant taxable income?

Yes. Federal law requires that grants to businesses be included in gross income. The IRS has specifically stated that if governments use CARES Act Coronavirus Relief Fund payments to establish grant programs to support business, businesses receiving such grants must include the grant amount in their federal gross income. Because these grants are taxable under federal law, they are also taxable under Massachusetts law.

Can I deduct business expenses paid with grants awarded by the MGCC, or with other Commonwealth or municipal grants funded by the CARES Act Coronavirus Relief Fund?

Yes. Whether you are subject to the personal income tax or the corporate excise, if your expenses are deductible on your federal return, they are also deductible on your Massachusetts return.

Debt Relief Subsidies Paid by the Small Business Administration

I report my business income on a personal income tax return. My business received a loan qualifying for debt relief subsidies paid by the Small Business Administration pursuant to Section 1112 of the CARES Act. Are these debt relief subsidies taxable income?

Expenses Deducted Under A Forgiven Ppp Loan

For N.C. income tax purposes, any expenses paid using the proceeds of the forgiven PPP loan that are otherwise deductible at the federal level are not deductible when calculating N.C. taxable income. Taxpayers must make a North Carolina addition for the amount of expenses deducted on the federal return if the expenses were paid with proceeds from a PPP loan, the loan is subsequently forgiven, and the income associated with the PPP loan forgiveness is excluded from federal gross income.

A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106 of the CARES Act may not deduct those expenses for N.C. income tax purposes in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.

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Refunds In Progress For Affected 2020 Minnesota Returns

We have started the process of adjusting 2020 Minnesota tax returns affected by law changes to the treatment of Unemployment Insurance compensation and Paycheck Protection Program loan forgiveness. For details, read our .

We’ll begin adjusting more than 540,000 Individual Income Tax returns and issuing refunds on September 13 to taxpayers affected by the UI changes. We’re also adjusting and issuing refunds on more than 2,000 business tax returns affected by the PPP changes.

These tax law changes were enacted July 1, 2021, along with other retroactive provisions affecting tax years 2017 to 2020. We have updated 2020 Minnesota tax forms and instructions we continue to review those for tax years 2017, 2018, and 2019.

Note: When filing or amending a Minnesota return, be sure to use the most current forms or update your tax software.

How Do I Compute The 25% Gross Receipts Test For A Multistate Business

PPP Loan Forgiveness Update

Under AB 80, California adopted Section 311 of Division N of the CAA. This federal law provides the computation for determining whether a taxpayer has a 25% or greater reduction in gross receipts by comparing total sales. For California purposes, taxpayers should also use total sales when computing their reduction in gross receipts.

Recommended Reading: What Documents Do You Need For Tax Return

Debt Questions On Forms 1065 And 1120s

The AICPA also notes that there are concerns about how to answer the questions on the Forms 1065 and 1120S regarding whether there has been a forgiven debt. The letter notes:

There is uncertainty regarding the proper tax reporting for deducting qualified PPP expenses and subsequent loan forgiveness. For example, there is no clear or uniform method to record forgiven PPP loans on a taxpayer’s return, such as how and where they are reported . In particular, the basis questions on Form 1065 and Form 1120-S are a concern for many PPP borrowers as this is a new and still quickly evolving program:

  • 2020 Partnership Form 1065, Page 2, Schedule B, Question 6 During the tax year, did the partnership have any debt that was canceled, was forgiven, or had the terms modified so as to reduce the principal amount of the debt?

  • 2020 S Corporation Form 1120-S, Page 3 Schedule B, Questions 12 During the tax year, did the corporation have any non-shareholder debt that was canceled, was forgiven, or had the terms modified so as to reduce the principal amount of the debt?

The letter makes the following recommendation to the IRS on this issue:

The AICPA recommends that Treasury and the IRS issue immediate guidance on the proper reporting and expectation in answering these basis questions for passthrough entities that have, or will have, their PPP loans forgiven. This guidance should provide that PPP loans are not debt for the purpose of these questions.

Deductibility Of Business Expenses Funded By Ppp Loans

Editor: Kevin D. Anderson, CPA, J.D.

Paycheck Protection Program loans are eligible for forgiveness if the business uses the funds to pay for eligible items such as payroll, certain employee health care costs, interest on mortgage obligations, rent, and utility expenditures. Provided the applicable requirements are met, a borrower of a PPP loan can apply to the lender for all or a portion of the loan to be forgiven. One important issue is whether expenses paid for with PPP loans can be deducted as business expenses. This item traces the history of IRS guidance and, ultimately, congressional legislation on that topic.

IRS position on deductibility

When the PPP was created by the Coronavirus Aid, Relief, and Economic Security Act, P.L. 116-136, it appeared Congress’s intent was that any amount of a PPP loan that was forgiven would not be considered cancellation-of-debt income to the borrower ). However, because this section of the CARES Act is an “off-Code” provision, Sec. 61 and Sec. 108 are not applicable as they relate to taxation of the forgiveness. As a result, the IRS took the position that otherwise deductible expenses that were paid with loan proceeds that were ultimately forgiven should be nondeductible, despite Congress’s apparent intent.

Congress intervenes


Kevin D. Anderson, CPA, J.D., is a managing director, National Tax Office, with BDO USA LLP in Washington, D.C.

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Business Taxes Are Not An Allowable Use Of Ppp Funds

The latest round of coronavirus relief also gives business owners more flexibility with how they spend PPP funds. Newly covered costs include protective equipment, property damage and business software.

Business taxes arent part of that expanded list. So if you use your PPP loan to pay your business taxes, that amount wont be forgiven.

Does California Conform To The Exclusions For Other Sba Loan Forgiveness Or Grants

Is PPP Loan Forgiveness Taxable? Are PPP Expenses Deductible? ERTC and PPP

No, not at this time. AB 1577 and AB 80 only provide gross income exclusion for covered loan amounts forgiven pursuant to the CARES Act, the Paycheck Protection Program and Health Care Enhancement Act, the Paycheck Protection Program Flexibility Act of 2020, and CCA and EIDL grants under the CARES Act or targeted EIDL advances under the CCA.

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Easy Steps To Learn How To Handle The Ppp Loan And Taxes

by Heather | Jan 18, 2021

Are you among the many businesses that received a PPP loan in 2020 to help your business get through the tough times? If so, nows the time to learn how to handle the PPP loan and taxes.

The most recent legislation passed by the US government has made some great changes for those who received the PPP loan. It also clarified points around handling the PPP loan and taxes. Finally, we got some clarity from the government about PPP loans on tax returns and expenses paid with the loan. Woohoo!

Lets dive in.

More Information To Come

We’ll provide updates, guidance, and resources on our website and through email bulletins. For the latest information:

  • Come back to this web page.

You may also email your questions to .

Advance Payments of Federal Child Tax CreditChanges to the federal Child Tax Credit mean that many families will get advance payments of the credit for 2021. Starting in July, the IRS pays half the total credit amount in monthly payments, and you claim the other half when you file your 2021 federal income tax return. For details, go to Advance Child Tax Credit Payments on the IRS website.

Also Check: How To Pay My State Taxes Online

Are Ppp Loan Proceeds Taxable Income On My Tax Return If My Ppp Loan Was Forgiven Under Covid

No. Loan proceeds received under the Paycheck Protection Program are not taxable income, regardless if the loan was forgiven or not. Forgiven PPP loans are not considered cancellation of debt income, and as such, you should not report these loan proceeds on your tax return. This applies to all taxpayers, whether your business is a sole proprietorship, single-member LLC, partnership, multi-member LLC, corporation, or any other entity type.

In the TaxAct program, you will not be asked to enter any PPP loan proceeds information. The IRS is not requiring nor requesting this information on tax returns. You should enter your gross receipts and other income items as you normally would.

How To Avoid Further Confusion

PPP Loan Forgiveness 101: How to Apply

While the IRS made this announcement to prevent confusion, it is likely to create even more as lenders scramble to adjust their processes. The process of filing Form 1099-C for cancellation of debt is so standard that many lenders have automated the filing as part of their typical tax information reporting obligations.

While you should be able to trust that your lender will take the appropriate actions to modify their systems, you should keep an eye out for any mistakenly issued payee statements from your lender or under-reporter notices from the IRS.

Recommended Reading: Who Needs To File Taxes

Expenses Related To Ppp Loan Forgiveness And Aaa/oaa Treatment

The AICPA makes the following recommendation regarding these related expenses and their treatment for purposes of the S corporations AAA:

The AICPA recommends that the related expenses that are deducted and attributed to the PPP loan are not taken into account for AAA pursuant to section 1368. The OAA should include those related expenses as they directly relate to the tax-exempt income by operation of Section 276 due to PPP loan forgiveness. Treasury and the IRS should issue guidance reflecting this proper treatment and disregard Treas. Reg. § 1.1368-2 for this limited purpose.

The AICPA provides the following justification for this position:

The primary policy goal of subchapter S is to treat S corporations as a passthrough entity and ensure a single level of tax for S corporation shareholders. Section 276 explicitly provided for the deductibility of qualified PPP expenses, that PPP borrowers are not to reduce any tax attributes, and that no basis increase shall be denied by reason of the exclusion of PPP forgiveness from gross income. Section 276 intended to accomplish this statutory scheme by treating the PPP loan forgiveness as tax-exempt income for passthrough entities.

Unemployment Benefits And Unemployment Fraud

Are the unemployment benefits I received during 2020 taxable in Massachusetts?

While unemployment is generally taxable income for Massachusetts purposes, see additional questions below about a recent law change providing tax relief for certain unemployment income. If you received unemployment benefits or pandemic unemployment benefits during 2020, you should receive a Form 1099-G, Certain Government Payments, showing the amount of unemployment compensation received. This income must be reported on your 2020 Massachusetts Individual Income Tax return whether you are eligible for a deduction or not.

Does Massachusetts allow a deduction for unemployment income?

As a result of a recent state law change, taxpayers with household income not more than 200% of the federal poverty level may deduct up to $10,200 of unemployment benefits from their taxable income on their 2020 and 2021 tax returns for each eligible individual. Federal law allows a deduction of up to $10,200 if the taxpayers federal adjusted gross income is less than $150,000. Since the Massachusetts income threshold is different from the federal income threshold, some taxpayers may be eligible for a deduction on their federal tax return but not on their Massachusetts tax return. Complete the worksheet to find out if you are eligible for a deduction.

If Ive already filed my 2020 income tax return, should I file an amended return to claim the new deduction?

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If You Got Ppp Loan Heres What You Need To Know To File Taxes

The approaching tax season is raising fresh questions for business owners who received a loan through the Paycheck Protection Program.

Can you deduct expenses paid with your loan funds? Do you need to do anything differently this year? And if your loan is forgiven, is it considered taxable income?

Answers to these questions have been hard to nail down, in part due to shifting guidance from the IRS. But new rules spelled out in the latest round of coronavirus relief help put an end to the confusion.

Tax season is going to be messy this year. Here are the COVID-19 answers you need. »

Doing your taxes wasnt easy before COVID, says Keith Hall, president and CEO of the National Association for the Self-Employed. The good news is this year isnt going to be any harder than tax returns youve had in the past.

Ppp Loan Forgiveness Is Included As Book Income

PPP Loan- Cancellation of Debt Not Taxable | 1099-C | IRS Announcement 2020-12
  • Go to the Mc or Ms screen, in the Balance sheet folder.
  • Enter the loan forgiveness in the PPP loan forgiveness field.
  • UltraTax CS reports this amount:

    • On the Schedule M-1 as income on books not on return.
    • For an S Corporation, the amount is treated as other exempt income.
    • On Schedule K, line 16b
    • On Schedule K-1, Box 16B
    • On the Shareholders Basis Worksheet, Page 1, Line 7.

    As of 2/18/21, the IRS has not provided guidance on the tax consequence of the PPP loan forgiveness and the S Corporation Schedule M-2. UltraTax CS reports the PPP loan forgiveness as an increase to the Other Adjustments Account by default. If you want, you can enter code O for OOA or A for AAA in the PPP loan forgiveness / Schedule M-2 code drop-down field in Screen Ms to report the PPP loan forgiveness as an increase to the Accumulated Adjustments Account.

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    Learn About The Tax Impact Of Telecommuting In 2020 If You Commuted Across State Lines Before The Covid

    For Massachusetts personal income tax purposes, Massachusetts residents are generally taxed on all income from sources inside or outside of Massachusetts. Non-residents are only taxed on items of gross income from sources within the Commonwealth, including income derived from or connected with any trade or business, including any employment, in Massachusetts. Employers must withhold Massachusetts tax on any wage income that is subject to the Massachusetts personal income tax whether the employee is a resident or a non-resident of Massachusetts.

    There are special rules for wages or other compensation paid to employees who are working remotely due to the COVID-19 Pandemic. The special income sourcing rules adopted for telecommuting employees are intended to minimize disruption for employers and employees during the Massachusetts COVID-19 state of emergency. These rules are effective for the period beginning March 10, 2020 and ending September 13, 2021. This page provides answers to commonly asked questions on this subject.

    Where Do I Put The Ppp Loan On A 1065

    I disagree with your entire statement. The law passed on 12/29/2020 made the entire PPP loan forgiven NON TAXABLE and the deductions paid with the PPP loan deductible. It also made the Employee Retention Credits available to those receiving the PPP loan as long as the wages used for the ERC were not the same wages used for the PPP loan satisfaction. The PPP loan will go in box 10 or box 11 on the K-1 for either the 1065 or the 1120/1120S. Employers now have the opportunity to go back to their 941 tax returns and claim the ERC if they have any. You need to update your education.

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    Ppp Loan Issues Following Covid

    The COVID-related Tax Relief Act of 2020 Section 276 provided clarification that in addition to the forgiveness of a Paycheck Protection Program loan being treated as exempt from federal income tax, any deductions paid with such funds that led to the forgiveness would also be deductible.

    While the provision did provide that the forgiveness would lead to an increase in basis for the holder of interests in passthrough entities, the law did not deal with issues related to timing or the potential at-risk issues for the PPP loan, nor specify how the forgiveness and expenses impacted the accumulated adjustments account for an S corporation. These matters can lead to a number of issues that taxpayers and their advisers will need to resolve.

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