PPP loan forgiveness - what will it look like on the partnership K-1 - Spidell

PPP loan forgiveness – what will it look like on the partnership K-1

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Message Board PPP loan forgiveness – what will it look like on the partnership K-1

  • This topic has 4 replies, 4 voices, and was last updated 2 weeks, 2 days ago by William Dewberry.
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    • #260242
      Rachelle Black

      My partner and I are thinking ahead in regard to a client of ours that is a partnership. They received the ppp loan and it appears they will fall into line with almost all forgiveness. Part of the ppp was to pay (obviously) employee wages but guaranteed partners salary. Assuming they get 100% forgiveness, how would it be reflected through the partnership books to the K-1? Will a partner in effect have $20,833 (for the 24 weeks) less in taxable guaranteed payments (assuming it was forgiven and there for not a partnership deduction), or just a special allocation of tax free income for that amount? I know we are not the only ones out there thinking ahead. Let’s get some guidance on how this will flow through.

    • #260559
      Mitch Gerstein

      You are mixing apples and oranges. Guaranteed payments are a business expenses against partnership income. It is also individual income to the recepient partner. Guaranteed payments as a business expense will be reduced by $20,833 per partner.The net partnership income is then allocated among the partners reported as ordinary income on their respective k1. Partners k1 will also report the actual amount paid to the them as a guaranteed payment. The approach is the same if instead PPP loan proceeds was used for employee wonce. Here the employees annual W2 includes the actual amount paid to the employee. Wage business expense is reduced by PPP loan forginess.<!–more–>

    • #260594
      William Dewberry

      I’m handling this a different way; I’ll prepare the tax return as normal all deductions listed as normal, then on the expense schedule put in 1 line item negative expense, PPP loan forgiveness costs.

    • #260620
      Randal Thornally

      I agree that for Federal tax reporting purposes the P.P.P. loan forgiveness should be reflected as a negative expense item in the expense section of the tax return. I think this true no mater what type of entity return that is being prepared (1120, 1065, 1041, etc.).

      Question: Will the California F.T.B. accept this approach since I believe they view the forgiveness more as a cancellation of income item, or will we be required to create some Schedule M-1 entries solely for California reporting purposes?

    • #260821
      William Dewberry

      Agreed, unless Ca conforms, I’d treat the forgiveness as income

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