New York Enrolled Agent and Lion: Thanks for that information. Much appreciated.
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Its a non taxable grant however as other posted have commented, as it sits the expenses used for this will be non deductible.
I would imagine however most accountants, myself included will not adjust expenses and just add the grant as income.
This will make tying out expense accounts (payroll) possible. It will work out the same this way and will be easier to review items and past years expense accounts on reports.
Chris
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I've heard colleagues say they are suggesting booking expenses as usual. Then, on the tax return, they will include a one-line negative expense for (in OP's scenario) -2,700 for Forgiven PPP Expenses. However, Schedule C might not require that or any adjustment; still waiting for clarification/NOT-interim final regulations.Comment
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This is the first time I heard someone suggest to include it in income. That's a terrible idea for those w/ a gross receipts tax and doesn't even seem like a good idea for those that don't. Lion's idea of a separate line negative expense is a much better idea."Taxation is the price we pay for failing to build a civilized society." ~ Mark SkousenComment
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You would list it under "other income" so it would not mess up any gross income calculations. Also, this will not mess up any ytd/prior year financial reports on the expense side (IE why is my wages/utilities lower for 2020 than 2019/2021). Your W2s will still tie out as well. To me, if you have an expense with a credit balance, that is called income and needs to be listed as such. (other income).
ChrisComment
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Having a separate negative expense line prevents any skewing of ytd/prior reports. Including non-taxable grants into taxable income sounds like a bad idea."Taxation is the price we pay for failing to build a civilized society." ~ Mark SkousenComment
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It doesn't make sense to me either. Perhaps spanel can elaborate on this strategy?Comment
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If I were to tell you it was a taxable grant, where would you list it?
ChrisComment
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The PPP loan proceeds used for "owner-compensation replacement" of a sole proprietor (with no employees) is not taxable. Moreover, in this particular case, there are no expenses to be reduced. The idea behind the reduction in expenses is to avoid a double dipping of expenses related to employees. The funds that a sole proprietor withdraws from the business is not deductible to begin with so there is no expense to be reduced to avoid double dipping.
Take a look at Tony Nitti's article in Forbes on June 17 where he says,"For self-employed individuals with no employees, the forgiveness related to payroll costs is both purely mechanical and mathematically assured. This is because the loan proceeds were calculated by taking 2.5/12 of the borrower’s 2019 Form Schedule C net profit, and in turn, the forgivable payroll costs for a self-employed taxpayer — or what is referred to as “owner replacement cost” — is ALSO calculated by taking 2.5/12 of the borrower’s 2019 Form Schedule C net profit. Thus, a self-employed taxpayer who had $100,000 of Schedule C net profit in 2019 would have borrowed $20,833 (2.5/12 of $100,000), and will have forgiven $20,833 (2.5/12 of $100,000)."
Also, take a look at pages 13 and 14 of the most recent guidance from the SBA:
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We are talking about were there is PPP money for Employees/Utilities were expenses would be reduced.The PPP loan proceeds used for "owner-compensation replacement" of a sole proprietor (with no employees) is not taxable. Moreover, in this particular case, there are no expenses to be reduced. The idea behind the reduction in expenses is to avoid a double dipping of expenses related to employees. The funds that a sole proprietor withdraws from the business is not deductible to begin with so there is no expense to be reduced to avoid double dipping.
Take a look at Tony Nitti's article in Forbes on June 17 where he says,"For self-employed individuals with no employees, the forgiveness related to payroll costs is both purely mechanical and mathematically assured. This is because the loan proceeds were calculated by taking 2.5/12 of the borrower’s 2019 Form Schedule C net profit, and in turn, the forgivable payroll costs for a self-employed taxpayer — or what is referred to as “owner replacement cost” — is ALSO calculated by taking 2.5/12 of the borrower’s 2019 Form Schedule C net profit. Thus, a self-employed taxpayer who had $100,000 of Schedule C net profit in 2019 would have borrowed $20,833 (2.5/12 of $100,000), and will have forgiven $20,833 (2.5/12 of $100,000)."
Also, take a look at pages 13 and 14 of the most recent guidance from the SBA:
https://www.sba.gov/sites/default/fi...l-Rule-508.pdf
ChrisComment
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I'm trying to get some clarity regarding the filing of PPP loan forgiveness applications with banks, and then the SBA.
If I'm reading it correctly , PPP recipients have up to 10 months , after their 8 week period is completed, to file the paperwork(or in this case PDF) and then the bank can take up to 60 days, to provide you an answer on how much of PPP loan is forgivable , and then pass along to SBA to confirm it, after another 30-90 days?
HOW are we to prepare 2020 Taxes by 4/15/21, if this is the timeframe? Loan forgiveness and deductable expenses are not going to be determined until approved by SBA.
I'm not into another extension season like this Tax season from hell.
Any insight would be appreciated.
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You can work with your clients to file their forgiveness applications in the time frame needed to meet your deadline for filing their taxes on time. They don't have to wait 10 months! Or file extensions.Comment
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Don't spend time worrying yet.
You pretty much know all there is to know about your Schedule C clients, and any clients that didn't reduce wages or FTEs below acceptable levels, and their PPP forgiveness at this time. For your other small businesses, all loans under $150,000 or some such amount MIGHT be forgiven automatically, and there's even a chance that PPP expenses could be deductible. If either one or both of those become law, even if your clients dally, you'll know what is deductible or not. No matter what, you'll have a good idea of each client's forgiveness/deductions when you see their 2020 documents, no matter what stage their forgiveness application is in the whole process.
If they don't give you the whole story and you like filing amendments (2020 1040-X might be eligible for e-file), 2021 could be a money-making year for you.
If your clients don't fit the way you work, fire them.Comment
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I agree with Lion. There is no reason to help your clients procrastinate. If they want your help, they can act like adults and get you the information in a timely manner. DEFINITELY don't let their procrastination cause you more stress.
Or if you are more flexible, you can send out a notice saying your clients have a choice: (a) get you the PPP paperwork by xxx date or (b) if you don't get it by that date, they will need to file an extension for their 2020 tax returns because you won't get to it until the May or June.Comment
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