Many agents received PPP loans in 2020 to help them smooth their revenue and expense crunch due to the Chinese Covid crisis.
These loans can and are being forgiven and agents are asking how they should treat the income for either 2020 or 2021 tax years.
As long as the PPP money is still a LOAN, it should have been posted as Cash on your Balance Sheet in the Asset category and as a Current Liability as a Loan Payable. Expenses, of course, lower cash but the loan remains a liability as Loan Payable.
Once you have been notified that the PPP money has been forgiven it must be posted as an “Other Income” item on your Operating Statement (Profit/Loss Statement) and all of it falls to Profit in the year that the loan was forgiven. That profit is posted to the Balance Sheet as Owner’s Equity and the Current Liability Loan Payable is removed as an offset. The Balance Sheet is still correct since you will debit Loan Payable and credit Owner’s Equity.
The PPP money must be entered as Other Income (it is NOT operating income, having nothing to do with commissions, fees or contingency income) but is NOT federally taxable. NOTE: IT IS CONSIDERED TO BE TAX EXEMPT INCOME. Your tax advisor will use Form M-1 to adjust your tax return to match your books. Please see your tax advisor to determine how your State will treat the PPP forgiven money.