Stay Ahead of Law Changes & Protect Yourself Against Being Audited: Corporate Transparency Act and Reasonable Compensation

How are PPP & EIDL Accounted for on my Bookkeeping & Tax Preparation

How are PPP & EIDL Accounted for on my Bookkeeping & Tax Preparation

Hey, folks. Kevin Molen with Molen and Associates here wanted to give you a quick update on how we are treating the payroll protection program, loans and grants and the economic injury disaster loans and grants. So a couple of folks had well, there was a lot of folks that had a lot of questions last year on how this was treated tax wise. Now we’re getting down to the nitty gritty and the actual filing of your tax return. The way that we account for this on the tax return is anything that was forgiven, any of the loans that were forgiven, like the payroll protection program loans, a vast majority of those were forgiven. And the economic injury, injury, disaster loans, a portion of that grant could have been forgiven as well.

This was hotly debated, whether this was going to be taxable and whether you could deduct the expenses. There was a lot of legislation in regards to this. There was a congressional letter of intent that was sent by several senators in 2020 to try and clarify. The IRS was being a little obstinate in regards to how this was being handled. Finally, at the tail end of 2020, there was some final very clear kind of legislation that cleared up the issue that made it so that the forgiveness was not income and that you could deduct the expenses of these that you use this money for.

So we got to have our cake and eat it, too. In that scenario. Now, the treatment of this for income tax purposes is we do actually need to report it. There are some states that will tax you on the forgiveness of this just because the federal government is not taxing you on the forgiveness. There are some certain states that are. So, number one, don’t make the mistake of thinking that it’s not relevant at all. It does matter, but you’ve got to be real careful with how you’re handling it, which is why you should engage a competent professional to do it. But the income shows up as what’s called other income, which is there’s a field for this to indicate that it is nontaxable. The funds, the assets are reported on your balance sheet. And, and then the expenses that you use the money for are taken off the top of your profit and are not. They are deductible and the income is not taxable. So again, it’s the best of both. So you receive $50,000 of a payroll protection loan. That payroll protection loan is used to pay your employees’ wages and you get to continue to deduct those wages as well as the employees receiving them. But money is fungible, which means now that money that you use to pay the payroll, you can use that money then elsewhere, which if it’s a deductible, business expense is still something that you can that you can write off the top of your income. So little complicated the way that works.

One thing I wanted to mention is you business owners out there, the ones who have these payroll protection loans and these economic injury disaster loans, especially the ones who received the forgiveness on these. Don’t forget that the business deadline is March the 15th. So coming up here real, real soon, it’s crucial that either you get your tax your business tax return filed by the deadline or that you file an extension. The extension itself is what’s called an automatic extension. The federal government gives it to you for free. You just have to ask for it. I will tell you that there is a penalty. That penalty is greater than $200 on a per partner or ownership basis per month that it is delinquent. So do not delay filing this tax return without securing an extension or if you can file timely. So that’s my my update in regards to the two different governmental loan programs from last year that are kind of a hot topic and reminding you business owners to make sure you get filed.

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

Maximize Your QBI Deduction Before It’s Gone: Act Now!

Maximize Your QBI Deduction Before It’s Gone: Act Now! Introduced by the Tax Cuts and Jobs Act (TCJA), the Qualified Business Income (QBI) Deduction has become a cornerstone tax break for business owners. However, this valuable deduction is scheduled to sunset after...

Outsourced vs. In-House Bookkeeping: Which Is Best?

Outsourced vs. In-House Bookkeeping: Which Is Best? As a small business owner or self-employed professional, keeping accurate financial records is critical for managing cash flow, preparing taxes, and driving growth. When it comes to bookkeeping, you have two main...

Cash vs. Accrual Accounting: Which is Best for Your Business?

Cash vs. Accrual Accounting: Which Method is Right for Your Business? Choosing the right accounting method is one of the most important financial decisions a small business owner can make. Whether you’re just starting out or looking to refine your bookkeeping process,...

Individual Tax Preparation: What You Need to Know Before Filing

Discover essential tips for individual tax preparation When tax season rolls around, one of the most common questions people ask is: “Should I do my taxes myself or hire a professional?” If you’re considering individual tax preparation, this guide will walk you...

How to Save Taxes When Selling a Business

How to Save Taxes When Selling a Business Selling a business is a significant milestone, whether you’re ready to retire, start a new venture, or simply cash in on years of hard work. However, without proper tax planning, a large portion of your profits could go toward...

What to Know About the Kiddie Tax

What to Know About the Kiddie Tax The Kiddie Tax is a tax law that can catch families off guard if they’re not aware of how it works. Designed to prevent parents from shifting investment income to their children to take advantage of lower tax rates, the Kiddie Tax...

What to Know About 1099s and Contractor Payments

What to Know About 1099s and Contractor Payments For small business owners and self-employed professionals, hiring independent contractors can be a flexible and cost-effective way to grow your business. However, managing contractor payments comes with its own set of...

Breaking Down the Costs of Poor Bookkeeping

Breaking Down the Costs of Poor Bookkeeping For small business owners and self-employed professionals, bookkeeping might not always feel like a top priority. However, neglecting this critical task can lead to significant financial and operational consequences....

Top examples and benefits of why you need a 6000 lb vehicle

Maximize Your Vehicle Tax Deductions: Popular SUVs, Crossovers, and Trucks with GVWRs Over 6,000 Pounds For business owners and self-employed professionals, purchasing a vehicle with a gross vehicle weight rating (GVWR) over 6,000 pounds can open the door to...

Request an Appointment Today

1 + 5 =

Call us at

Share This