A wide variety of grants are available for education, research, business, municipal, and even home projects. Whether the funds are taxable or not will depend on the type of grant received and the purpose for which its intended.
The funds may be distributed under the auspices of a grant, emergency relief funds, a stipend or a variety of other names. It can be a one-time payment or made through recurring payments. A grant can be in the form of cash, supplies or equipment.
Grants and scholarships are not taxable, providing the money is used for study or research for a degree. The funds must be spent at an eligible educational institution.
Grants for business purposes are taxed by the IRS as income, regardless of its source. Depending upon the state in which the business is located, owners may also be required to report grant funds as income on their state income tax returns. Some grants are only allowed to be used for very specific purposes.
Programs are available for projects ranging from home repairs for low-income families to those for installing eco-friendly solutions that protect and preserve natural resources.
A schedule C should be completed for grant money. The benefit of claiming it as income is that it will usually be taxed at no more than 30 to 40 percent on federal or state income tax returns. Even if a state says the grant is tax-free, it will still be subject to federal taxes, Social Security and Medicare taxes.
In some instances, recipients must prove what the grant was spent on or what was purchased. No matter how it’s distributed, the source, its intended purpose, or if it’s in the form of cash, equipment or supplies, recipients are better off financially if they report it as income. It will be considered revenue by the IRS.
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