The EIDLA never needs to be repaid and therefore is never considered part of the loan. It is essentially a Grant. If an EIDL is refinanced into a PPP loan, the Advance is deducted and therefore never included in the balance of either the EIDL or PPP.
Because you mentioned the QB:SE category - QB: Self Employed has only 2 income categories right now: Business and Personal. For now, I have recorded my own Advance as Business Income, but I suspect it will later become non-taxable, at which point I will recategorize it as a Transfer (since it would be neither personal nor taxable business income) or just "Exclude" it. See section below.
The loan itself should be categorized as a business loan, of course, but that category is an expense category. One could categorize the receipt of the loan principal as a Transfer or just "Exclude" it. It's hard to say. It would be smart come end of year/tax time to review any large transactions in your QB transaction history. In my opinion, QBSE doesn't do a great job of managing these kinds of transactions. For businesses that need more precise accounting of these issues, QB Online could honestly be a better option. The UK Community has a thread on recording business loans that I found informative, so you can see the ethos behind the QBSE system.
About the EIDLA tax classification:
At this time, there is no official guidance on treatment of the EIDLA as taxable income. Some sources will say it should be presumed taxable business income (which is how I have recorded it until further guidance is available). Other sources will point to the General Welfare Exclusion which I believe will ultimately be applied by the IRS; see below. (I am not a licensed accountant or tax professional.)
"The IRS has consistently concluded that payments to individuals by government units, under legislatively provided social benefit programs, for the promotion of the general welfare, are not includible in a recipient’s gross income. The classic example of this type of payment is a government payment made to victims of a natural disaster.
To qualify under the GWE, payments must
- Be made from a government fund.
- Be for the promotion of the general welfare, based on individual or family need.
- Not be made as payment for services."
(Journal of Accountancy, 2006)
