PPP Loan forgiveness in a different year than expenses paid

[taxladyworking]

I have a client who secured a PPP Loan in 2020 and used it for his payroll, rent, etc. The loan forgiveness will not occur until 2021. He is confident that the full amount will be forgiven. How do we account for this in 2020? Do we leave it as a loan payable and still deduct the expenses? And then in 2021 move the loan payable to nontaxable income on the 2021 S-Corporation return? Any guidance is appreciated.

[abctax55 · Accepted solution]

Liability on the B/S until forgiven.

No basis increase until loan forgiven... which may create basis issues if there's a loss or a lot of distributions.

Expenses (Federal) deductible as *normal*.   State maybe, maybe not, maybe not YET (CA). 

[taxladyworking]

Thank you! Luckily he is in a non income tax state so there is no need to file a state return.