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Level 2

How to record PPP loan forgiveness?

We recently received PPP loan, but I'm wondering how to record PPP loan which can be forgiven. Assuming I received $30k PPP loan recorded as "short-time liability", eventually, $20k out of $30k can be forgiven, how do I write-off that loan? Record $20K as "Income"?
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Best answer May 04, 2020

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Level 10

How to record PPP loan forgiveness?


@topconbuilder wrote:
We recently received PPP loan, but I'm wondering how to record PPP loan which can be forgiven. Assuming I received $30k PPP loan recorded as "short-time liability", eventually, $20k out of $30k can be forgiven, how do I write-off that loan? Record $20K as "Income"?

@topconbuilder 

 

"Record $20K as "Income"?"

 

Yes, it's income and should be recorded as "Other Income" type in QBO.

The remaining $10K reclassed to a long-term liability account.

Hope this helps!

 

Forgiveness of Debt Income 1.PNG

 

 

View solution in original post

23 Comments 23
Highlighted
Level 10

How to record PPP loan forgiveness?


@topconbuilder wrote:
We recently received PPP loan, but I'm wondering how to record PPP loan which can be forgiven. Assuming I received $30k PPP loan recorded as "short-time liability", eventually, $20k out of $30k can be forgiven, how do I write-off that loan? Record $20K as "Income"?

@topconbuilder 

 

"Record $20K as "Income"?"

 

Yes, it's income and should be recorded as "Other Income" type in QBO.

The remaining $10K reclassed to a long-term liability account.

Hope this helps!

 

Forgiveness of Debt Income 1.PNG

 

 

View solution in original post

Highlighted
Level 2

How to record PPP loan forgiveness?

Thank you. It's very helpful.

Highlighted
Level 1

How to record PPP loan forgiveness?

I am a Sole Proprietor and just received my PPP loan. What is the best way to set up in QB's online to record all information? Simple is good for me.

Highlighted
Moderator

How to record PPP loan forgiveness?

Thank you for joining the thread, RB30. The best way to set up the PPP is as a short term liability if you know it would be forgiven. If you're not sure how to create this liability, use this article to set up the loan in QuickBooks Online. Once you've completed that, everything should be good to go. If you have any additional concerns or questions, let me know.The Community and I will be here to assist.

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Level 1

How to record PPP loan forgiveness?

It is not taxable income.

Highlighted
QuickBooks Team

How to record PPP loan forgiveness?

Hey there, usgroupie. Welcome to the Community.
 

Under the CARES Act, the funds from a Paycheck Protection Program loan won't be taxed as income if your loan is forgiven by the lender you received the money from. If forgiveness isn't granted, then the funds will be taxable income. To apply for forgiveness, you'll have to submit a request to your lender. They have up to sixty days to approve or decline a request. 
 

There's a helpful loan forgiveness calculator tool on our website, specifically designed for the PPP loan. You can use this to calculate an estimate of what you may be forgiven for.
 

If you have any questions, I'm here to help you find an answer. Enjoy the rest of your day!

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Level 1

How to record PPP loan forgiveness?

Thank you Zack.  Yes, correct.  I just wanted to clarify the matter.  However, it is my understanding that Congress is still addressing the matter of the IRS opinion that expenses paid with PPP funds (e.g. salaries, payroll taxes, rents, etc.) will not be tax deductible (as expenses).  They deemed it as double-dipping.  Congressional leaders state the intent of the CARES Act was that such expenses would be tax deductilble expenses.  This should certainly be resolved in the next 60-90 days (one would hope).

Q:  Since I have the loan entered in QB DT as a short term liability, when it is forgiven, how do we enter it so the loan balance becomes $0?  With a Journal Entry?

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Level 2

How to record PPP loan forgiveness?

what would the loan be If it which has been forgiven is not taxable? Nontaxable income?

Highlighted
Level 1

How to record PPP loan forgiveness?

I have a similar question.  When the loan is forgiven, and we need to remove the debt from our books, is the credit to non-taxable income?

 

Highlighted
Level 1

How to record PPP loan forgiveness?

Agreed, Zack. When we record the forgiveness via journal entry are we crediting non-taxable income?

 

Highlighted
QuickBooks Team

How to record PPP loan forgiveness?

Hello Everyone, 

 

Thanks for stopping by the QuickBooks Community. While you all raise excellent questions, at this time we don't have that information yet. However, we are working on implementing an update very soon. In the meantime, I suggest checking out the following article to get set up for PPP loan forgiveness. 

 

- PPP loan forgiveness. 

 

If you have any other questions or concerns, feel free to post them down below. 

 

Thank you for your time and patience, have a nice weekend. 

 

 

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Level 2

How to record PPP loan forgiveness?

Don't get ahead of the cart you are pulling....

 

It is not "income" until it is forgiven. That is between you and the lender, information on payroll you provide them, and the six months grace you've been given to apply for forgiveness, or make your first loan payment.  I would set it up at the least, as a short term liability, "PPP Loan," and then use a Journal Entry if it becomes "income."

Highlighted
Level 1

How to record PPP loan forgiveness?

Since everything is taxable unless the IRC states it is not, it should be booked as "Other Income"; then the loan should be listed in the liability section for long term debt as it has a repayment period of greater than one-year.  Book the expenses as usual until the loan is forgiven.  Once forgiven, then debit against the liability (loan amount) for the amount forgiven and book the credit to each of the expenses as the expense will no longer be deductible per IRS guidance.  What ever is not forgiven will be taxable, but the good news is the expense will still be deductible. The bad news is the liability will still need to be repaid.

 

From what I have read, not only are you required to submit to the bank what the funds were used for and amounts, but you also have to prove that your business was actually impacted by Covid-19.  Also, the employer and employee portion of OASDI and Medicare cannot be paid with PPP funds. Again, this is what I have read, but not necessarily verified yet.

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Level 3

How to record PPP loan forgiveness?

The SBA said it is NOT income, so we need to enter as one would a grant.  We are waiting on more guidance from the Treasury, and Congress.

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Level 3
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Level 1

How to record PPP loan forgiveness?

Yes, agreed, not income...uh, per se.

 

The original post was how to book forgiveness and my response was intended to be two-fold.  First, until forgiven, it is a loan and booked as loan.  However, once forgiven, it has to be removed from the balance sheet and put somewhere....I'm suggesting "other income" so that expenses shown are accurate, otherwise payroll expenses will be understated.  Again, some loans or partial amounts will not be forgiven.

 

For loans that are forgiven, the loan uses , i.e. payroll, rents, etc. will not be deductible (as of IRS guidance for now) and therefore will add amounts to net income, which is taxable. So, it really is contributing to income. If you place the amount forgiven in "other income", you then adhere to this rule.  All bet are off if the AICPA is successful in it's challenge to the deductibility of the expense.  Then who know where we will put it....paid in capital??

 

For amounts that are not forgiven, then it's not income, it's a loan and the expense for which funds are used can be deducted.

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Level 1

How to record PPP loan forgiveness?

It seems we need a clearer explanation of handling the QB accounting for PPP loan forgiveness. 

 

Accounting transactions when PPP or portion forgiven. Most are stating that the proper approach when the loan or a portion of the loan is forgiven is to:

-- debit the liability account (the PPP loan) and 

-- credit "Other Income" which then becomes taxable income, as it is adding to the overall income. 

At the same time, the expenses that are the qualifying expenses for the loan forgiveness (e.g., payroll at not less than 75% of the loan amount, rent and utilities not exceeding 25% of the PPP loan amount) are recorded as ordinary expenses.  The effect is that the qualifying expenses offset the loan forgiveness so that 1) the "other income" and 2) the associated expenses are BOTH tax neutral, consistent with CARES Act and the IRS Notice 2020-32 of April 30, 2020.

 

For example, the PPP loan is $50,000, and $50,000 was spent on gross payroll not including employer taxes (employer share of SS and Medicare), and assuming other qualifications were met, the loan is 100% forgiven.  In this case debiting the "loan" and crediting "other income" creates the $50,000 income that is then offset by the $50,000 gross payroll expense so all is good.  This approach is consistent with the CARES Act specifying that the employer is not subject to tax on the forgiven amount of PPP loans, and also is consistent with the intent of IRS Notice 2020-31 of April 30, 2020, which says that no tax deduction is available for expenses that are paid with tax-exempt dollars.  Offsetting the PPP-loan-forgiveness "other income" with the PPP-loan-expenses that qualify for the "forgiveness" allow both the income and expenses to offset each other so no tax implication on either side.  Prevents "double dipping" -- getting effectively a non-taxable grant, and still deducting from other taxable income the related, qualifying expenses that made the PPP loan forgivable.

 

Congress is currently considering allowing the payroll and other qualifying expenses for the PPP loan (in full or part) to be forgiven to become normal deductible expenses that offset ordinary taxable income.  That is not currently the case, but if this passes, then the PPP forgiveness could not be included as ordinary income, but would have to be set up as a non-taxable "other income" and the expenses would be debits to profit/ordinary income, and would, then, reduce taxes.   

 

Am I missing something here, or is the above a reasonable interpretation of how forgiven amounts of the PPP loan are to be accounted for?

 

Thanks

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Level 2

How to record PPP loan forgiveness?

Hi All,

The fact that I should enter the loan amount as negative threw me off - did I confuse myself without really having to?

Highlighted
QuickBooks Team

How to record PPP loan forgiveness?

Hello there, JVasquez102461,

 

Usually, QuickBooks let's you enter the full amount as a negative amount since it is the business liability. However, if you want to make a bank deposit for the money you receive from a loan, then no need to enter an opening balance. This way, it won't throw off the balance.

 

I've added these articles to help you track the PPP loan in QuickBooks Online:

Let me know if you need additional information by commenting below. I'm always right here to help.

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Level 3

How to record PPP loan forgiveness?

In QuickBooks desktop please set up an other current liability account and name it PPP loan. When you make the deposit you're going to expense it there. That's it. Easy cheesy. 

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Level 2

How to record PPP loan forgiveness?

While this approach will provide the right answer in terms of taxable income in the P&L, it will not provide the easiest method to use that P&L to fill in the Schedule C (or business tax return). The company revenue should not be "inflated" by the other income (which is not really income). The payroll expenses which were used for loan forgiveness should not appear on the Schedule C.

 

I have not played around with this yet, but I would suggest using the forgiveness amount as a negative expense in each expense category which is going to be forgiven. So when the loan is forgiven you would debit the loan and create a credit for the payroll expense.

The P&L for the year would then appear correct (although a P&L for any other period would still be weird).

 

Any thoughts?

Highlighted
Level 1

How to record PPP loan forgiveness?

So then  make a new vendor for the lender? So it can be interred in Company register?   Example: Deposit for $$$$$ from B of A for PPP loan?

Highlighted
Level 1

How to record PPP loan forgiveness?

If its not forgiven, its a loan like any other loan.  It's not income.

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