In 2020, the Paycheck Protection Program was pretty much all we talked about. I was super pregnant at the time, and was convinced my baby’s first word would be PPP.
I’m hopeful that you’re in a place where you’ve received your PPP forgiveness letter, and now you’re ready to record it!
Side note – if your request was denied, drop me a message and I’m happy to chat to you about that.
But if you utilized the funds right, you should have received complete forgiveness.
My job now is to make sure you record it correctly!
PPP forgiveness is NON-TAXABLE INCOME!
If memory serves, PPP was originally going to be taxable income. So if you received, for example, a $20000 PPP loan, you were going to be taxed as if it were revenue.
Then the law changed to say it’s not taxable income (which is great!), but what I’m seeing is people not categorizing this forgiveness correctly.
Recording PPP forgiveness isn’t as tricky as you might think. If you’re a visual learner you’re going to want to watch me walk through this process in my live training on YouTube.
There’s a few steps you’ll need to follow to make sure your forgiveness has been recorded properly so you won’t be taxed on it.
Recording your forgiveness in Quickbooks Online
Head into the chart of accounts section on Quickbooks Online (under Accounting) and create 2 accounts.
The first one will be a long term liability account type, with the detail type notes payable, and you’ll name it PPP loan.
The second account – which you’ll create in a similar way – will be Other Income account, detail type miscellaneous income. Make sure you name it Non-Taxable PPP forgiveness income.
Why do you need to be so specific with the names? Because I’ve seen a lot of bookkeepers and tax preparers out there still misinformed that PPP forgiveness is taxable. By labeling these accounts correctly, your tax keeper won’t be confused.
Balancing the accounts
First, you need to find the initial deposit of your PPP loan into your account, and categorize it into the Long Term Liability account you created. Regardless of whether it’s forgiven, the initial loan is a liability and needs to be recorded correctly.
Now, to make sure you’re not taxed on it…
When you receive your official notice of forgiveness, you’ll need to move that loan from your balance sheet as a liability. It’s going to go onto your profit and loss sheet as other, non-taxable income.
To do this, you need to create a journal entry in Quickbooks with the date set as the date on your forgiveness letter. Next, you need to credit your non-taxable account with the exact amount of your PPP forgiveness.
Within the journal entry, you can add an attachment – and this is where you upload your copy of the PPP forgiveness letter. Instantly, you’re audit-proof!
You’ll see on your P&L sheet that you’ve moved that money across from a liability to a non-taxable income.
This isn’t a complicated process. But it will really help for you to watch me walk through each of the steps in my training video on YouTube.
If you don’t manage your own books, then share this video and post with your tax preparer.
But you know, as an entrepreneur, it’s our responsibility to know what’s happening with your money! I want to make sure you’re not misinformed so you can make decisions about what’s happening in your business.
If you need help managing your finances, then these are services I offer so I would absolutely love to help you. Have a look at my website and see what I can do.
But mostly, I hope this training has helped you understand how to make sure you’re NOT paying tax on your PPP forgiveness!