Small BusinessTaxes

Tax accounting for PPP loans in small S corporations

Income
PPP loans are not taxable income but of course must be recorded in the company’s bookkeeping. The question is how to record these transactions for correct tax treatment. Their isn’t just one ‘correct’ way to do this but actually several options listed by AICPA under IAS20. (My information comes from third party coverage in Journal of Accountancy). Perhaps the most simple way, and the way that I’ve used when the loan is reasonably expected to be forgiven, is that the PPP can be included in bookkeeping as “Other Conditional Income” that is designated as nontaxable income and therefore does not need to be reported on the tax return.

Shareholder equity
A forgiven PPP loan affects shareholder basis and so it may be important to report this on the corporation’s tax filing. Enter it on Schedule K line 16b. It should flow to Schedule M1 (line 5) and to the M2 under “Other Adjustments Account”. Verify the shareholders got the added basis in their basis worksheets. If this doesn’t work Enter it manually on the M-1 line 5.