Dreams come in all shapes and sizes – and price tags. From getting a degree to launching your own business, accomplishing your goals sometimes takes more than a leap of faith. Fortunately, grants are available to financially fuel your path to achieving your dreams. However, the grant money can be taxable depending on the grant’s purpose and contractual terms. Here’s what you need to know.
A financial advisor can help you create a plan to ensure that you can achieve your financial goals.
What Are the Different Types of Grants
Personal grants are financial awards for individuals pursuing personal goals, including educational, artistic, or charitable endeavors. Grant recipients receive the money without the requirement of paying back a penny. Instead, the terms of the grant constrain recipients in using the money for specific purposes.
Like personal grants, business grants are free money to use for specific purposes. The difference is that these grants are solely available for businesses. Typically, businesses win grants for projects that uplift the community or perform critical technological or medical research. In addition, some grants are for businesses that can’t acquire financing for unfair or uncontrollable reasons (such as operating in an impoverished area where conventional business loans aren’t available).
Generally, successful grant applicants meet the eligibility criteria of the grantmaker. You can obtain a personal grant by submitting a detailed application, including a proposal for how you’ll use the money. Grantmakers can be governmental or private entities.
Personal grants can come in amounts from several hundred dollars to over $100,000. Here are six common types you can receive:
- Education grants. These grants assist individuals in funding their education expenses, including tuition, books, and housing. For example, the federal government provides Pell Grants to undergraduate students with dire financial needs. Pell Grants max out at $7,395 for the 2023-24 school year. Various education grants come from government agencies, private foundations, and educational institutions.
- Housing grants. These grants help individuals secure housing. For example, numerous agencies and organizations across the country offer down payment assistance for would-be homebuyers with insufficient financial resources.
- Healthcare grants.These grants provide financial assistance for medical expenses, including treatments, medications and healthcare services. For instance, fertility treatments are usually expensive, so various foundations give aid for in vitro fertilization.
- Veteran support grants. Veterans often face a host of challenges when they come back home, from physical and psychological to financial. Grants such as the VFW’s Unmet Needs program provides $2,500 per veteran for debt relief, medical care, and more.
- Professional grants. Private organizations typically allocate funds each year to support work in a specific field. Research and scholarship often receive funding, but funding also goes beyond these purposes. For example, National Geographic provides up to $100,000 for individuals breaking new ground in science, technology, and conservation.
- Arts and culture grants. These grants support individuals involved in artistic or cultural pursuits, such as artists, musicians, writers, and performers. They can cover costs like materials, studio space, or exhibition fees. For example, the Ford Foundation offers these grants with a focus on documentaries.
Business grants help foster economic growth and entrepreneurship in economically challenged communities and populations. Here are four common types:
Government business grants. Government business grants are financial awards provided by various levels of government (local, state and federal) to support businesses in achieving specific goals or contributing to economic development.
These business grants can serve various purposes, including stimulating economic growth, creating jobs, fostering innovation and addressing specific needs within communities. Eligibility criteria for government business grants can vary widely depending on the specific program and the goals it aims to achieve. Federal grants are more competitive because they’re accessible to the entire country, while state and local grants can be easier to win because of their limited scope.
The U.S. Small Business Administration (SBA) offers various grant programs, including the Small Business Innovation Research (SBIR) program, which supports research and development efforts in small tech companies.
Minority grants. Minority grants are financial awards supporting businesses owned by individuals who belong to ethnic or racial minority groups, which may include African Americans, Hispanic Americans, Native Americans, Asian Americans, and others. These grants aim to address historical disparities and promote economic empowerment within minority communities. They help level the playing field for minority entrepreneurs. At the federal level, the Minority Business Development Agency makes such grants, with various other grants available by region.
Women’s grants. Women’s grants are financial awards exclusively for businesses owned and operated by women. Women’s grants aim to promote gender equality in entrepreneurship, empower women in business, and provide them with resources to succeed. For example, the Women’s Business Enterprise National Council (WBENC) provides the Dorothy B. Brothers Scholarship, which gives $11,000 per grantee for tuition for executive education.
Veteran grants. Veteran grants support businesses owned by U.S. military members who have ended their service. Veterans’ grants aim to assist veterans in transitioning to civilian life by providing resources and financial support for starting or growing a business. Although there are no ongoing grants veterans can apply for annually, financial support is occasionally available from the U.S. Department of Veterans Affairs (VA). In addition, veterans can also find grants at the state level.
Do You Have to Pay Taxes on Grant Money?
Personal grants usually aren’t taxable if you adhere to the conditions for receiving and using the money. For example, a grant for education is tax-free if you apply it to the intended expenses, such as tuition, books, and learning equipment. However, paying room and board may cause the grant to count as taxable income.
On the other hand, business grants are often taxable unless the organization receiving the money is a 501(c)(3) nonprofit. That being said, the taxation of business grants depends on the specific grant, the terms in which it is given, and how the recipient uses the money. As a result, it’s best to review the details of the grant you’re seeking and work with a tax professional for more insight.
How to Determine If You Have to Pay Taxes on Grant Money?
Not all grants are taxable, and the tax treatment can vary depending on factors such as the purpose of the grant, how you used it, and the specific regulations governing the grant program. Here are five steps to determine if you have to pay taxes on grant money:
- Review the grant agreement. Start by carefully reviewing the grant agreement or documentation provided by the grantmaker. This document will often outline the specific terms and conditions of the grant, including any tax implications.
- Ask the grantmaker. If the grant agreement doesn’t provide clear information about the tax status of the grant, reach out to the grantmaker or the organization providing the grant. They can guide you on whether the grant is considered taxable income.
- Search the IRS website. Visit the official website of the Internal Revenue Service (IRS) and look for information related to grants and taxable income. The IRS provides valuable resources and publications that can help you understand the tax implications of grant money.
- Research your state laws. In addition to federal tax laws, state tax laws may also impact the taxability of grant funds. Research the specific tax laws in your state’s Department of Revenue website to see if there are any additional considerations.
- Consult with a tax professional. If you’re still unsure about the tax implications of the grant, it’s advisable to consult with a qualified tax professional or accountant. They have expertise in tax matters and can provide personalized advice based on your specific situation.
Understanding grant money’s tax implications is crucial for individuals and businesses. While personal grants are typically non-taxable when used for their intended purposes, business grants often come with tax obligations unless the recipient organization is a 501(c)(3) nonprofit. However, the tax treatment of grants can vary based on the grant’s purpose, usage and specific program regulations.
Tips for Paying Taxes on Grant Money
- Grant money can help you overcome otherwise insurmountable financial obstacles. But taxes can undercut that funding. Fortunately, a financial advisor can provide tax expertise to keep you in the clear. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Grant money is free money for specific purposes. On the other hand, grant deeds may have a similar name but are for an individual transferring property rights to another person.
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