Many people are asking the question is small business grant money taxable income. The short answer is that it depends on what you do with the funds. If you use the funds in ways that will not change its value then you most likely will not be required to pay taxes on them. This also includes some private foundation grants. The trick is knowing which grant programs are considered income based.
When it comes to business grants many of them are not. They are mainly offered as a way to get start up money. There are many grants available from the government and other private foundations. You must read the fine print before accepting any offer. You want to choose the one that will allow you to effectively utilize the money you are awarded.
When it comes to these types of grants there can be some gray areas. For instance some grants may require you to use your new business income in order to repay the grant. Others may allow you to take a deduction for interest paid on the loan. It is best if you familiarize yourself with all of the grant terms.
How is small business grant income taxable? Again, it depends on the activity that is done with the grant monies. While the business grant may be free to receive, it may have to be used in a particular way in order to be eligible to be claimed. Even if it is free to apply for and receive, it still has to be claimed and the money used for the intended purpose.
Some grant programs are strictly for start-ups. Others may be for expanding an existing business. Still others are geared at improving an already existing company. There is also one type of grant that is simply for research. No matter what the purpose, you must always check with the grant officer to see exactly what it is that you will be receiving.
If you use your small business grant monies in a certain manner, it may become taxable. For example, if you use part of the funds to hire employees and buy equipment, those expenses are taxable. You need to check with your grant officer to make sure, but many times this is pretty common. If part of the funds is spent on advertising and paying for the company's web site, this also becomes taxable. This is because the government wants to make sure that these resources are used appropriately.
Another way to look at it is to say that the small business grant monies are not really “free” after all. They may be free to receive, but they need to be used in a particular manner to be considered. If you do not follow this advice, you could be in for some financial trouble down the road. Just because you have been approved for this funding does not mean that you can spend it in any way that you like. The IRS will be looking at this and will . . . . . . make adjustments to the tax brackets that it provides for individuals who avail themselves of this funding.
The bottom line is that when it comes to a small business grant, the bottom line is that it needs to be used correctly. If you are not clear on what you can and cannot do with the monies received, you could end up with financial problems. Be smart, and be sure that you follow the rules of the organization that you are applying with, so that you know what your monies are for and what you can and cannot spend them on.