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PPP Loan & EIDL Grant Update: How to Report for Tax Purposes. PPP Loan Forgiveness IRS Rules PPP Tax - YouTube
Channel: JJ THE CPA
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jj the cpa here hope you're doing well
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so i'm a practicing cpa
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so on the returns that i'm preparing i'm
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coming across still questions from
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clients i'm noting some in the comments
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related to
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how does it work for tax purposes when
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we're talking about the eidl grant
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and the ppp loan forgiveness
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so the good news is that these don't
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affect your taxes as in
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they do not reduce down your deductions
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so on schedule c or schedule f there's
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nowhere to indicate this because it has
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no effect on your taxes there's
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literally nowhere that you report this
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on your individual
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or sole proprietor or schedule f tax
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return you don't indicate your eidl
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grant or your ppp loan forgiveness
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there's just nowhere to report it
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because it has no tax effect it's tax
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exempt income that's reported nowhere
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else
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and it doesn't reduce down your
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deduction so great news on that now if
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you're filing a uh s corp or c corp or
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partnership return so if you're finding
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1120s or 1120 or a 1065
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you do not report this as income you do
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not report it as a reduction of your
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deductions
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but what you are reporting it is as
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tax-exempt income tax-exempt income and
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so not to get too far into the weeds but
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when you're talking about the tax-exempt
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income for the eidl grant as well as the
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ppp
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when you're reporting this tax-exempt
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income and i'm going to give you a link
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right now to the irs website that will
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give you a link to these instructions
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and what you're going to see here
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and i'm just going to get specific so if
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you're filing a schedule c or schedule f
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you don't have to keep
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listening to the video if you're filing
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an s corp partnership or c corp
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then i'm going to walk through this
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quickly
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with you in terms of where you
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will see this as reported and if you're
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not the one that's preparing the return
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this will at least help you know that it
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got on the return correctly because you
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have to remember the tax return is your
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responsibility just because you hire a
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preparer doesn't change your
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responsibility to ensure that it's all
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on there correctly but the reason you
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want to ensure it's on there correctly
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is so that it will
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in fact increase your basis or properly
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be reflected as a part of retained
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earnings depending on which filing
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status here
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because when you spent the money
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you took deductions and that reduced
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down your tax basis you want to ensure
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that your tax basis is restored so it's
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going to be an even some game it's not
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going to overall give you an increase to
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your basis more than what you spent but
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you definitely want to ensure that your
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tax basis is correct because tax basis
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is important when it comes to being able
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to deduct losses
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if and when you sell your business your
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basis is what determines in essence what
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your gain is because it's part of your
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basis
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so if you're filing
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a form 1120s
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then you're going to see if you're not a
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preparer here's where you will see it
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and should see it
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you should see on schedule k of the
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1120s so all you got to do is keep
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flipping and you're going to see a
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schedule k and then you're going to see
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a column of numbers but it should be on
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line 16 b is in boy you'll see the
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amount of ppp loan forgiveness and that
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will be on the line item that's tax
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exempt income
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also on the schedule k1 so that is what
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then goes to
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the owner of the s corp you will see it
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on the schedule k1 also 16 b
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that up then is the tax-exempt income
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and as it gets reported on the
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individual return it's just an increase
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to the basis you're not going to see it
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anywhere on the individual form 1040.
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then you're also going to see on the
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1120s
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on page five there's a schedule m1 it's
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right there in the middle it says
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schedule m1 and it should be on line 5a
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that will allow it to be in essence a
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part of accounting for it
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also in the reconciliation from taxable
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income to book income and it then should
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also be in your aaa account which is
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down below on page five of the 1120s and
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if you have a preparer there's nothing
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wrong with just asking about it but this
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is a way you would know it's done
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and that you're getting the increase
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into the basis now on form 1065
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you would also see on schedule k as well
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as schedule k1 it's on line 18 b as in
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boy
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you'll also see it on schedule m1 which
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is line 6a and then you should see it
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reflected in the schedule m2 those
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amounts will all be the same
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on the 1120 i spent some time on this
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and if you are reporting it
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on your financials to arrive at book
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income so this is for a c corp 1120
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which most of people are not filing a
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form 1120
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but
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you will not see it anywhere on the
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return other than in the reconciliation
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from taxable income to book income
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assuming that you recorded it on your
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uh financials internally or for
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management purposes
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but it'll be on line seven which is in
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essence where that is income that is not
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taxed also then you will see it
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on schedule
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or in schedule m2 as well now i'm also
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going to give you
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the notice
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that
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indicates or revenue procedure that
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indicates the rules related to this so
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revenue procedure 21-48
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which gives you three options of the
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timing of when to actually account for
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this tax-exempt income at the
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forgiveness which you have three options
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one is that you account for this when
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it's been spent or accrued which is
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probably the best bet
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or you can account for the tax-exempt
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income in the year that you file for ppp
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loan forgiveness or you can report it in
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the year in which ppp loan forgiveness
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is actually
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achieved that it's been forgiven
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so the reason that really with every
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client i'm working with we're just
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accounting for the ppp loan forgiveness
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is tax-exempt income in the year in
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which the ppp was spent
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is because that is the year in essence
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that tax basis was reduced
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so if there's been basis reduced due to
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the expenses then i want that client's
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basis to be increased
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because of the tax-exempt income being
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then reported in the same year
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the only way that i could see that
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somebody would want to report it in a
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later year either in the year that it is
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filed for forgiveness or forgiveness was
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received is if for some reason they
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didn't want the
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client to take advantage of losses in
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that current year because then they
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wouldn't have enough basis you don't
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even have to really understand that
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because that'd be a rare rare
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circumstance that you would want in
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essence a loss to be carried over to the
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next year with not enough tax basis and
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then having the basis increased in the
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following year to take advantage of the
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loss in the next year what i'm telling
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you is that might be less than one
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percent that would want to try and do
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some kind of strategy related to that
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but it is allowed that's revenue
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procedure 21-48 i'm going to give you a
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link to that
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also then there's revenue procedure
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21-49 that addresses partnerships
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and then 21-50 that addresses those that
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are filing partnerships under the
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centralized partnership audit regime
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that's allowing them to amend the k1
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to reflect this if they want to make a
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change go back and make a change so
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typically for most you're dealing with
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revenue procedure 21-48
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now the thing about it is and i'm glad
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you stayed till here is that you are to
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attach a statement to the tax return
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that indicates that according to
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notice 21-48
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here is how
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that business is then accounting for the
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ppp loan forgiveness as tax-exempt
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income and so if you're using software
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at least the one i'm using which is
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drake
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where i go to enter in the tax-exempt
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income there's another little input
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screen right next to it says ppp i click
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on that and then it allows me to check
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the box that i do want this statement
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added to the tax return
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indicating what i'm electing for it to
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do
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which is for me it would be then
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electing for it to be in the year that
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it was expended
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so with that being said
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uh hopefully this helps you out related
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to that and overall again no tax effect
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for eidl or the ppp
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and then as it relates to accounting for
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these things it's as the tax-exempt
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income and then for schedule c and
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schedule f you don't have to worry about
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any of these things all right hey thanks
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for tuning in i'd love it if you'd
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subscribe and then don't you ever forget
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you've never met a cpa quite like me
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have a great one
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[Music]
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kkk
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[Music]
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cpa quite like kk
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