I'm a graduate student and my 1098-T includes funds reimbursing me for travel, conferences, and research. It's not being used as income how do I handle the reimbursed funding? In the past, I've just left it as income when it was just travel and conference fees, but as the amounts increase to fund my research I'll be left with a hefty tax liability for what I see as a business expense.
Unfortunately you have to take the tax hit. You can't deduct work-related expenses from unearned income. Your fellowship is considered unearned because the fellowship is technically a training position and is not compensation for performing a service. But, you can't deduct work-related expenses from this type of income.
If you wanted to treat this as earned compensation and file a schedule C, you could deduct the expenses but you would pay an additional 15% self-employment tax on your net earned compensation after expenses.
I'm not sure that your University is required to include reimbursements in your 1099-T if you get reimbursed under a qualified plan (where you provide receipts and other proof of your legitimate expenses.) You may want to get together with other students in your situation and press the controller's office to check with their tax advisor.
You say "my 1098-T includes funds reimbursing me for travel, conferences, and research".
The amount in box 5 of a 1098-T, that exceeds the amount in box 1, is almost always taxable scholarship.