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grants and contracts from dept of education whimsica 01-30-2007
Posted by whimsica on January 30, 2007, 9:52 pm
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 I received a grant/contract from the Department of Education
under their Small Business Innovation Research program.
This year it was labeled as a grant. Last year it was
considered to be a contract. I'm not sure what the
difference is.

I have a small company sole proprietorship that received the
grant/ contract. Most often these are awarded to 25-100
employee companies which are not sole proprietorships.

The money is supposed to be used to develop the business,
pay for expenses, pay for development of products that will
improve science education. But as it stands now they are
sending me a 1099-misc 7.non employee compensation form for
the money I've received so far which the IRS tells me is
considered income or profit. The money is not for me
personally, so it is not personal income. Nor is it profit
for the business. It's more like a business loan that does
not need to be paid back.

Is there some tax exemption for govt contracts/grants
through this program SBIR? When the Small Business
Association gives a grant award is it taxable or considered
profit?

Ideally I would like the money to go into a business entity,
then draw a salary from it, but I do not want it to be
considered income for the business, or profit. This was not
the intent of the dept of education.

Thank you,

Dan

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Posted by Shyster1040 on January 31, 2007, 5:12 pm
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 Generally, unless the enacting legislation provided that the
grant or award was nontaxable, grants from federal agencies
are taxable. Unless excluded, the grant is included in
gross income under the general rule of Sec. 61 as an
accession to wealth clearly realized - basically, you got
paid for conducting an activity for a profit; that's gross
income unless there is a specific exemption.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by whimsica on February 2, 2007, 1:32 am
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> Generally, unless the enacting legislation provided that the
> grant or award was nontaxable, grants from federal agencies
> are taxable. Unless excluded, the grant is included in
> gross income under the general rule of Sec. 61 as an
> accession to wealth clearly realized - basically, you got
> paid for conducting an activity for a profit; that's gross
> income unless there is a specific exemption.

I'm still confused about a few things. Typically an sbir
grant is given all at once to be used by the business over
the period of a few years. If it is considered to be income
for the year it is recieved, then the entire amount would be
taxed that year. How can it then be used for the next year?
Is there some method for claiming only a portion of the
grant each year?

Thanks,

Dan

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by bono9763@yahoo.com on February 2, 2007, 1:51 am
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> I received a grant/contract from the Department of Education
> under their Small Business Innovation Research program.
> This year it was labeled as a grant. Last year it was
> considered to be a contract. I'm not sure what the
> difference is.
>
> I have a small company sole proprietorship that received the
> grant/ contract. Most often these are awarded to 25-100
> employee companies which are not sole proprietorships.
>
> The money is supposed to be used to develop the business,
> pay for expenses, pay for development of products that will
> improve science education. But as it stands now they are
> sending me a 1099-misc 7.non employee compensation form for
> the money I've received so far which the IRS tells me is
> considered income or profit. The money is not for me
> personally, so it is not personal income. Nor is it profit
> for the business. It's more like a business loan that does
> not need to be paid back.
>
> Is there some tax exemption for govt contracts/grants
> through this program SBIR? When the Small Business
> Association gives a grant award is it taxable or considered
> profit?
>
> Ideally I would like the money to go into a business entity,
> then draw a salary from it, but I do not want it to be
> considered income for the business, or profit. This was not
> the intent of the dept of education.

The money, whether a grant or a contract, is revenue, not
profit. Profit is the difference between revenue and
expenses. Also, as a sole proprietor, you can't draw a
salary from your business. If you don't know these things,
you better get help fast, because the government is very
strict on reporting for SBIR grants. Everything has to be
documented.

Dennis

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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