The PPP Loan & Financials - How To Account For Your Loan

As most companies are working closely with their lending institutions on their PPP forgiveness applications, the question of how to account for PPP loan expenditures and forgiveness moves to the forefront. Here’s some advice experienced accounting firms in Las Vegas will offer:

How to Account for Your PPP Loan

There are several items to consider when accounting for your PPP loan. First and foremost, keep in mind that qualifying PPP loan expenditures are currently non-deductible. This means that any qualified expenses paid with PPP loan funds must be excluded from your taxable income calculation. It’s also important that the PPP loan is accounted for in such a way that it does not skew the presentation of income and expenses for operating purposes. The risk to business owners is making decisions and assumptions based on distorted financial data.

Many business owners believe that to account for the loan properly, they must specifically reduce the qualifying expenditures like payroll, utilities, etc. that allow PPP loan forgiveness. This method can significantly distort financial reporting on operations.

Another accounting option is to create an “OTHER INCOME” item that accounts for PPP loan forgiveness in the income statement. This line item should not be offset against specific operational expenses. Accounting for the PPP loan in this single line item will allow financial statements to present an accurate operational picture and at the same time, reduce expenses as required by the law.

An associated issue is that the required reduction of deductions in calculating taxable income is necessary in 2020. This will impact the timing of filing 2020 tax returns as many business owners will be waiting for loan forgiveness in 2021. This simplified “OTHER INCOME” method will aid in finalizing 2020 tax returns.

Work with Accounting Firms in Las Vegas

There is currently no guidance as to the tax effect of PPP loan forgiveness granted in 2021 for loans funded in 2020. Until we have more direction, you’ll want to consider a more conservative approach to your quarterly estimated tax payments. As you account for PPP expenses as non-deductible, you’ll want to work with your CPA and tax advisor to adjust your 2020 Q2, Q3 and Q4 estimated tax payments accordingly.

We check for new guidance frequently on the timing of loan forgiveness and the deductibility of PPP expenses. We will keep you informed as new information is released.

If you have any additional questions about accounting for your PPP loan and are still trying to decide between different accounting firms in Las Vegas, please contact your Client Service Director at Fair, Anderson & Langerman or email us at info@falcpa.com.