grants and contracts from dept of education

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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Reply to
whimsica
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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.

Reply to
Shyster1040

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

Reply to
whimsica

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

Reply to
bono9763

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