Updates on Internal Recording on Your Financial Statements and Tax Deductions for PPP Loan Covered Expenses
Updates on Internal Recording on Your Financial Statements and Tax Deductions for PPP Loan Covered Expenses
Below are rules as I understanding both the accounting and tax consequences of Debt Forgiveness of PPP Loans.
If you are preparing financial statements for a bank you will want to follow the attached rules on when to take the PPP loan off of your financial statements. This will be when both your bank and the SBA concur on the Forgiveness amount which may be five months after your initial application.
In both preparing financial statements for a bank as well as for your tax return mainstream wisdom leads towards showing the amount/partial amount of PPP Loan Debt that is Forgiven as an Other Income Item on your financial statements rather than as as reduction of covered expenses.
For Tax Purposes…Whether you have or have not submitted your PPP Forgiveness Application by the end of 2020 and either have or have not received a formal response to your PPP Forgiveness Application request by the end of 2020, you are required to take into income in 2020 the full amount of the loan reasonably expected to be forgiven (regardless of if your PPP loan is forgiven in either tax year 2020 or 2021).
The option of selecting a year for deduction applies only to the portion of the PPP loan if your Forgiveness Application is denied in whole or in part or if you opt to never request PPP Loan Forgiveness.
For those desiring more detailed reading:
Two Approaches for PPP Loan Accounting | RKL LLP
