How to record PPP loan forgiveness in QBO (or any accounting system)

Yay! You got the notice from your bank or the SBA saying the SBA has paid off your loan! WOOHOOO! but how do you account for it? Don't let improper accounting throw off your numbers, get you accidentally taxed too much, or mislead stakeholders! You need to put the PPP loan forgiveness in the RIGHT PLACE in your books, and this video shows you how.
We reference another accounting for PPP video and you can find that link here:
• Accounting for PPP loa...
You can get the free download HERE: claracfo.podia...
Remember that PPP loans are NON TAXABLE for federal purposes, but check with your state to see if you have any tax liability related to PPP forgiveness.
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Hannah Smolinski is a #CPA and the Founder of Clara CFO Group. Find out more about Clara CFO Group at claracfo.com/
Disclaimer: This video is intended for educational purposes and
should not be taken as legal or tax advice. You should consult with your financial professionals about your unique financial situation before acting on anything discussed in these videos. Clara CFO Group, LLC is providing educational content to help small business owners become more aware of certain issues and topics, but we cannot give blanket advice to a broad audience.

[@pegfischer8044]

Wow! Makes perfect sense and I never would have figured it out myself! Thanks for your clear instructions and explanations of accounting terms

[@jorgefraga5045]

Great video !. One of the best videos I have ever seen ....Very well paced and understandable.

[@ClaraCFO]

Wow, thanks so much!

[@MrGregorio16]

Thank you for sharing your knowledge and experience.

[@ClaraCFO]

Thanks for watching!

[@AngelSouls]

Do you cover sales tax for small businesses? I'm in Colorado and just learned that my digital-only business now requires sales tax on those items. I'm having a hard time finding further information on how to handle that, and many accountants seem to not have all the info either. Thank you!

[@ClaraCFO]

I have a really old video here: kzbin.info/www/bejne/Y5-naZR_g7t9q7c But this is a topic that I am going to be interviewing professionals on in the coming months! What questions do you have? You can put them here, or email us: [e-mail]. Thanks for the comment!

[@muhammadmaqsood4408]

Good settlement of the PPP Loan & Forgiveness .

[@ClaraCFO]

Thanks for watching!

[@goldijm]

Great video. Super helpful, as always. Thanks Hannah!

[@ClaraCFO]

Glad it was helpful! Hugs!

[@michaelcohagan1775]

Nicely done, Hannah! Thank you. My bank sent me a letter, in January 2022, stating that they charged me interest of $137.97. My loan was paid off (not sure if paid off is the right word, but utilized fully and forgiveness applied for) in the 24 week window; I believe we applied for it in 10 weeks. I thought if the loan was paid off (again not sure if this is the correct word) in the window that I wouldn't be charged the interest -- did I miss something regarding interest on the PPP loan?

[@ClaraCFO]

Hi Michael! The interest started accruing on the loan from day 1, but the SBA said from the beginning that they'd pay off the loan and any accrued interest. So your loan accrued interest, but since your loan was forgiven, you don't have to make any payments since they forgave the associated interest too 🙌

[@michaelcohagan1775]

@@ClaraCFO Thanks, Hannah. It just looks intimidating when the letter states I was charged interest. I appreciate all your help.

[@ClaraCFO]

@@michaelcohagan1775 I get it! Good thing we don't have to pay it though! Whew!

[@yolibethbenitez5164]

Great video! Thank you.

[@hoss1151]

Thanks for the tip How about grant from state since it is taxable at fed level ? Also, how to handle K-1 in both cases? Thank you

[@ClaraCFO]

Keeping PPP income separate will definitely help your CPA identify the forgiven amount and treat it properly. Make sure to mention your forgiveness details to your CPA as well.

[@eemr8439]

What if I debit long term liabilities to get rid of the debt and credit equity account to increase basis?? When PPP was received I entered it as debit bank (cash) and credit long term liabilities to record the long, will these entries work?

[@ClaraCFO]

Make sure you watch this one: kzbin.info/www/bejne/n4KninuarZd7g6s

[@jacksonj3082]

Very good video - just to confirm, if PPP loan is forgiven and is shown on the P&L as Other Income, then this is a non-cash income item - similar to depreciation that is a non-cash expense item - yes no?

[@ClaraCFO]

Correct, it is a non cash income transaction. You will need to make sure to communicate to your CPA that it is PPP forgiveness so it's not taxed!

[@jacksonj3082]

@@ClaraCFO Excellent - thank you, a lot of 2 year PPP loans mature in May and June 2022.

[@zacrhodes1072]

How about accounting for the interest expense if you are on an accrual basis if the funding and forgiveness cross over a tax year end. For example, PPP funds received in Oct'20, booked interest accrual through 12/31/20. Is that interest expense non-deductible for tax purposes in the 2020 return?

[@ClaraCFO]

Hi Zac - did you see this video? kzbin.info/www/bejne/n4KninuarZd7g6s My question is if you made a non-taxable income accrual as well. Technically, you can accrue for PPP forgiveness "income" when expenses are incurred, so you could offset the accrued interest with a revenue accrual as well. Here's that IRS doc: www.irs.gov/pub/irs-drop/rp-21-48.pdf

[@L9KILO6]

Thank you for the video! I'm on sage 50, so I don't have the "other income" category. Ours is currently in an income account. Should the PPP forgiveness end up hitting retained earnings at close or is the forgiveness excluded from retained earnings?

[@ClaraCFO]

Do you have something that is like "Not ordinary income"? I'd be surprised if Sage 50 didn't have something like this since GAAP specifies that some items need to be reported outside of normal income. You could set up a separate line item for PPP forgiveness income - it will just throw off your margins from normal operations, so be sure to take that forgiveness out if you are doing any analytics or tracking of margins.

[@vicki9663]

Great video. Perfectly paced. One of the best I've watched. Thanks Hannah!

[@ClaraCFO]

So glad you liked it! thanks for the feedback too! :)

[@yolig1841]

My PPP Loan was forgiven in 2021 but was not able to account for that in my books. Tax returns for 2021 has been filed showing the PPP loan as a long term liability still. What do I do to clear this?

[@ClaraCFO]

The good news is that it doesn't affect your tax return as it is not taxable. You could write it off on the balance sheet as of 1/1/2022.

[@SparklingGemini13]

@@ClaraCFO How do you write it off? What account do you write it off against?

[@luisgarza2203]

Need info about COVID disaster loan!!!

[@ClaraCFO]

Luis, I have a ton of videos on the loans if you've already gotten one! If you haven't, all the covid loan programs are closed.

[@barfly246]

i have two of those

[@ClaraCFO]

two loans?

[@andrewsaruna8657]

Thank you very helpful.

[@ClaraCFO]

Glad it was helpful!

[@cathyhartsinck2162]

Do I book the disaster relief grant the same way?

[@ClaraCFO]

Are you talking about the EIDL grant? That's also non taxable, so it can be out as "oher income (non-taxable)" as well.

[@glendamix209]

helpful

[@ClaraCFO]

Glad it helped!