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.”

Self-Employment Taxes: A Deeper Dive

Self-Employment Taxes: A Deeper Dive Self-employment taxes are a critical component of the tax system in the United States, impacting individuals who work for themselves. Understanding the nuances of these taxes can help self-employed individuals plan and manage their...

Education Tax Benefits: Maximizing Savings with Credits and Deductions

Education Tax Benefits: Maximizing Savings with Credits and Deductions Navigating the complexities of tax season can be daunting, but for those bearing the costs of higher education, there are valuable tax benefits that can ease the financial burden. Among these are...

How to request Individual Penalty Abatement

How to Request Penalty Abatement Penalty abatement is a great way to help reduce your client's tax debt. Here's how you can request apenalty abatement from the IRS. Let’s say you’ve determined that your client is eligible for a penalty abatement to help reduce their...

Understanding the Child Tax Credit for 2023

Understanding the Child Tax Credit for 2023 The Child Tax Credit (CTC) is a significant provision in the U.S. tax code designed to offer financial relief to families with qualifying children. As we navigate the 2023 tax year, it’s crucial to understand the current...

Tax-Smart Strategies to Pay for College

Tax-Smart Strategies to Pay for College   As the cost of college continues to rise and inflation soars, families are looking for ways to make ends meet. One way to do this is by taking advantage of tax breaks that can help offset the cost of tuition and other...

Unlocking Financial Freedom: The Strategic Power of Revoke-S Elections

Unlocking Financial Freedom: The Strategic Power of Revoke-S Elections As a small business owner, you understand that time, money, and peace of mind are precious commodities. The world of taxes can often feel like a labyrinth of complexities, with ever-changing rules...

The Augusta Rule: A Comprehensive Guide to the Section 280A Deduction for Small Business Owners

As a small business owner, you’re likely familiar with the home office deduction. This popular tax break allows you to write off up to 300 square feet of workspace in your home at a rate of five dollars per square foot, resulting in a potential $1,500 annual...

Unleashing the Mega Backdoor Roth: Maximizing Your Retirement Savings

Unleashing the Mega Backdoor Roth: Maximizing Your Retirement Savings Embark on a financial adventure with us as we introduce you to the not-so-secret world of the Mega Backdoor Roth – the financial strategy that's not only powerful but sounds almost as charming as a...

Get Organized and Sail Smoothly with a Family Tax Firm

How to Get Organized and Sail Smoothly with a Family Tax Firm? Tax season—an annual event that can trigger a range of emotions, from anticipation to anxiety. For small business owners, the prospect of tackling complex forms, deciphering intricate regulations, and...

Tax Troubles in Houston?

Tax Troubles in Houston, Texas?Houston, Texas—a city of boundless opportunity, where dreams are forged and businesses thrive. Yet, beneath the gleaming skyscrapers and bustling streets, lies a challenge that many small business owners face: navigating the complex maze...

Request an Appointment Today

14 + 10 =

Call us at

Pin It on Pinterest

Share This