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PPP expense disallowance on 1120S for California

Level 1

I'm working on a California Form 100S and need to disallow expenses paid from PPP loan proceeds.  If I try to change the input for Schedule F, it will affect the federal return.  If I try to make it an adjustment on the M-1 it changes my book income and doesn't tie to the correct taxable income for California.

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2 Replies 2
Level 15

I did a search in the top on:

CA PPP

And found this:

https://proconnect.intuit.com/community/lacerte-tax-discussions/discussion/ppp-loan-ca/01/112350#M22...

 

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Level 3

Is CA only going to be a problem this year if the PPP has been forgiven before 12/31/2020? Because we have to wait to see.

"A.B. 1577 denies business expense deductions for those expenses that were paid for using forgiven loan funds."

Technically it is not the cancelation of the PPP debt that cause an increase in net income, taxable to CA, but rather the denial of the expenses paid with "forgiven" loan funds.

If my client's PPP loan is not yet forgiven at 12/31/2020 then the expenses paid are allowable on my 2020 return, and not disallowed until 2021 when the loan is forgiven (at which point I'll just include them in income for simplicity; 6 of one or half dozen of the other!).

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