In the United States, some grants are not included as part of taxable income. For instance, college grants are not taxable, as long as the funds are spent on tuition expenses for the student’s chosen program. However, it is not the same for most business grants.
In most instances, grant funds are considered a taxable income on your federal tax return. This simply entails that you will be expected to pay taxes on those funds. The financial impact of a grant in tax time depends on several factors, including your business structure.
Generally, it is better to expect that the majority of grants are counted as taxable income. If you’re not so sure whether a grant is taxable, you are advised to do your research. Read all terms and conditions, contact the grant maker, or check out what the IRS has to say about taxable income. You can also consult your accountant or tax professional to learn more about how grants affect your taxable income.
Howbeit, note that you may have additional write-offs at tax time. This tends to depend on how you spend your funds; you may add new tax deductions that help lower your income tax liability.
There are also some exceptions. Many grants specifically for veterans are non-taxable. Government grant funds used for paying certain utilities or the mortgage for your business may also be non-taxable.
Some grants can only be used in specific ways. Others are more flexible, allowing businesses to use funds to grow their company and improve their odds of success. Many different grant makers issue small business grants. These include local, state, and federal governments; private businesses; foundations; and corporations.
The application process and qualifying criteria vary depending on the grant you are pursuing. Note that some grants are available only to minorities, female-owned businesses, or businesses in certain sectors. Others have requirements based on your business model (i.e., grants available for small businesses and sole proprietors that aren’t open to larger businesses).
Once you have determined you meet the qualifications, an application is required. Some grants may also require additional steps, such as creating a video about your business and its financial needs or doing an in-person interview.
One thing to remember is that even if you meet all qualifications, grants are extremely competitive. Don’t automatically assume that it is “in the bag.” There are thousands of other qualified business owners looking to fuel their companies using grant funds.
How to Apply For a Small Business Grant in the United States
If getting free money was easy, everybody would be accessing it. However, the lengthy application process discourages many business owners from applying for funding—but even if the pool of applicants is small, the competition is high.
If you find a grant that seems like the right fit for your business, it is important to stand out from the rest. Here are simple steps to find and win business grants in the United States.
- Make sure to pay close attention to the stringent requirements of each grant application before you start the process. Are you a minority-owned business? Check. Focused on a positive environmental impact? Check. In operation for over three years? Hmm. If you have only been in business for two, you will have to wait until next year. Don’t try to fudge the truth—you will end up wasting valuable time and effort.
- Take your time to read over the grant application and provide complete and accurate information. An incomplete application may not make it through the screening process. Follow the instructions to the letter—if a section asks for a maximum of one page, don’t write one and a quarter.
- Consider reaching out to the grant officer and get a sense of what they are looking for. What are their needs? Timing? Constraints? The more you know the better.
- A well arranged business plan will be required. Make sure your business plan describes why your company will be successful, how the funding will strengthen your business, and how you will fulfill the specific goals of the grant. (Check out our complete guide on writing a business plan for more information)
- Follow up with the grant officer after you have submitted your application—it is okay to keep in touch in a non-intrusive way. Ask if they have any questions or concerns that you can address.
Small business grants are funds given to a business by an organization for a specific purpose. Grants are available to small business owners during their start-up phase, company expansion, and for research and development. Howbeit, unlike small business loans or credit cards, grants don’t need to be repaid, and they won’t hurt your business credit score.
If you are awarded a grant, plan ahead before you dive into spending your funds. Talk with a financial professional, be prepared to set aside funds if necessary for tax purposes, and plan to include taxable grants when filing your quarterly estimated taxes.