Business Grants and Taxes, Explained
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What are Business Grants?
How Business Grants Work
Types of Business Grants
Federal business grants These are offered by federal government agencies, including the U.S. Small Business Administration (SBA), to businesses that benefit the public or focus on certain areas of research and development. State and local government grants Many small business grants are offered at the state and local government level. States often provide grants to businesses that can help further their economic goals, such as child care centers or companies that are developing alternative sources of energy. Startup grants This type of grant is designed to provide the seed funding for a company that is just getting off the ground. Grants for women- and minority-owned businesses Some organizations offer grants specifically to help underserved groups, such as women and minorities, start or grow their own businesses. Grants for veterans There are a number of grants available specifically to assist business owners who are currently serving or have served in the U.S. military.
How to Get Business Grants
Are Grants to Businesses Taxable?
Which Business Grants Are Not Taxable?
Nonprofit recipients Not-for-profit businesses are usually considered tax-exempt under the 501(c)(3) section of the IRS code. Consequently, a grant would typically be considered nontaxable income if the purposes are relevant to the nonprofit's mission. COVID-19 relief grants Two government grant programs related to pandemic are not taxable — the Shuttered Venues Grant and the COVID-19 EIDL. Grants made by a federally recognized Indian tribe If a grant is made by the government of a federally recognized Indian tribe to a member to expand an Indian-owned business on or near reservations, the grant is generally not taxable.
Business Grant Tax Tips
Ask questions before (and after) receiving the grant. Read the terms and conditions of your grant agreement carefully (it may outline your tax obligations) and ask any questions you have. Understanding your tax liability can help you determine how much of the funding is available to use. Set aside some grant money for taxes. Before you spend all of the proceeds from a business grant, it’s wise to set aside the amount you will likely owe in taxes. Typically, grant funds will be taxed at the same rate as any other business income. Include grants in estimated taxes. If you pay quarterly estimated taxes, you’ll want to include any grant funds you received during that quarter when estimating how much you owe in taxes for that quarter. Keep good records. If you received a government grant that is not considered taxable income, it’s important to keep records showing how the funds were spent in the event of an audit by the Internal Revenue Service (IRS). Consult a tax professional. It can be a good idea to use a small business tax consultant to help with your taxes and review grant paperwork.
State and Local Tax Laws
3 Small Business Loan Tips
Online lenders generally offer fast application reviews and quick access to cash. Conveniently, you can find recommended small business loans by using Lantern by SoFi. If you are launching a new business or your business is young, lenders will consider your personal credit score. Eventually, though, you’ll want to establish your business credit. SBA loans are guaranteed by the U.S. Small Business Administration and typically offer favorable terms. They can also have more complicated applications and requirements than non-SBA business loans.
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