I'm doing some tax planning to see if I need to pay estimated taxes. I received a Cares Small Business Working Capital Grant. Where do I report that on my tax return and should it be subject to self-employment tax. If not, how can I report the grant as income without having it included in the self-employment tax calculation?
More details would be helpful:
- Assumption that this is not the Triple P funds you are talking about (paycheck protection program)
- Assumption is that this is a state specific grant?
- If this is a state specific grant it would be helpful to know which state
- What are the $$ involved?
- When did you receive it?
Sorry I didn't include the details you are asking for. Here you go: The SPARK grant is for $10,000 and it is being administered by Kansas Department of Commerce under the CARES act. The grant relates to working capital during the period March 1, 2020 through December 30, 2020 for companies that experienced a loss of at least 25% of gross revenues for the first six months of 2020 vs the same time period in 2019. The grant was awarded in the November/December timeframe.
The federal government provided funding to all states as a result of the CARES Act, which then funded the Coronavirus Relief Fund (“CRF”) to make payments for specified uses to states and local governments.
While I don't have all the details as to how Kansas allocated their funding, the SPARK grant is definitely part of this program.
Under the FAQs under the Kansas Department of Commerce, it does note that the grant is generally taxable. There could be some exceptions for specific individual (meaning grants to individuals) grants, but those provided to a business would be taxable. For some reason I am not able to copy and paste the link to that site.
Congress changed the tax code to make clear that any contribution by a governmental entity to the corporation is taxable. Although the rule only applies to corporations, the IRS would likely treat other businesses (e.g., sole proprietorships, partnerships, LLCs and S corps) similarly.
So bottom line, unless Kansas comes out with an exception for Kansas state tax, the grant will be taxable for both federal and Kansas purposes. This would mean these dollars are no different than any other revenue your business received, meaning that it would be subject to SE tax as well.