Are Small-Business Grants Taxable?

Business grants can be helpful in getting your business off the ground or making it through a hard financial period. However, small-business grants are taxable, which means you need to report any grants your business receives as income on your end-of-year taxes.

An accountant can give you advice specific to your business’s grants and tax situation. Along with checking in with your financial professional, review the information below to learn more about how to report grants as income.

Taxable grants must be  reported as part of your gross income. Generally, the grant provider will send you a W-2 form that will list what amount of the grand is taxable.

Generally speaking, you will list the taxable amount of your grant on the “Wages, salaries, tips” line on any of these  of these IRS forms: 

• Form 1040-U.S. Individual Income Tax Return
• Form 1040 SR-U.S. Tax Return for Seniors

If you are filing as a sole proprietor, consider only filing a 1040 with a Schedule C attached. Definitely check out this review of how to file taxes a sole proprietorship and double check these options with a tax specialist or financial advisor.

Of course, not every small business is the same and neither are the different grant programs the same. For a more thorough explanation of each individual grant, check out the Small Business Association’s website for a list of grants available to different varieties of small businesses.

Another awesome resource is Grants.gov. They offer resources on how to best find a grant that works for your needs and it also lays out all the new offerings the government is supplying due to the various national public health or natural disasters we are all dealing with

Some business owners may have a hard time distinguishing between grants and loans. A grant is a reward given to a qualifying organization or person to exact a goal. The SBA only gives grants to organizations or individuals who will use the money for a company that will stimulate the local economy or provide public services. If you are reading this and thinking, “Oh no, I don’t know if that is me!” Don’t worry. It is you. Any time you have created a business that will put money into your community qualifies as stimulating the economy.

You do not have to pay this money back. But unless you are using the money for education at a certified university, you will be taxed on it.

Loans are not gifts. You have to pay them back. It is money given on credit with the assumption that it will be repaid in full and sometimes with added interest depending on the terms of the loan. Loans are given based on need rather than merit. Loans differ in interest rates depending on a myriad of factors including who the lender is and your individual credit score. To understand how they work on a more granular level, read this piece about how small business loans work.

For more information on loans please take a look at these articles that lay out all the goods surrounding very specific loans:

Best Small Business Loans of 2022: Compare Financing

Best Small Business Payroll Loans 2022

8 Best Low-Interest Small-Business Loans 2022

10 Best Small Business Loans for Women 2022

If you review a grant for anything business-related, that grant money  is taxable.  The IRS will consider it part of your gross income, so plan on paying taxes for it.

Good luck, and congratulations on receiving a grant!

Want some ideas for finding the best funding for your business? Check out our favorite Best Small-Business Funding Options 2022

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.