Deductions & credits

It depends on if the grants are taxable or not for US tax purposes. In reading this  IRS publication, there is a stipulation in Part 2 (c) that states " if the grant's purpose is to achieve a specific objective, produce a report or similar product, or improve or enhance a literary, artistic, musical, scientific, teaching, or similar capacity, skill or talent of the grantee" then it isn't taxable income. If your grant falls within this parameter, it is not taxable income. This may be taxable income in Germany however and you may need to check with the German tax code.

If the grant does not fall within the parameter listed above, the income could be excluded under the foreign income exclusion since it is taxable income. Be sure you can qualify either through the bonafide presence test  or the substantial presence test. Even though the income is excluded for US tax purposes, it may be taxable in Germany and you will need to pay German taxes.

One last note, it you exclude your income through the foreign income exclusion, you will need to pay self-employment taxes on your self-employed income. Here are the steps to report this.

First you need to prepare a Schedule C declaring your income and expenses for the year,  This is done to determine your self-employment tax for the year. After the self-employment tax is determined and reported, you will prepare an entry to exclude the net income from your return. 

Next you will report your gross income and determine your exclusion from your return.  Here are the order of steps that need to be completed. To prepare Schedule C. 

1. Log into or open your return.
2. Go to federal
3. Wages and Income
4. Self-Employment
5. Self-employment income and expenses

After you have completed this, you will need to exclude the net income from your return, leaving just the self-employment tax, which you are required to pay.  These are also referred to FICA taxes, which are your Social Security and Medicare taxes. 

1. Log into your account
2. Select Wages and income>other income
3. Miscellaneous Income, 1099-A, 1099>start
4. Scroll to the bottom of the page to Other Reportable Income
5. Other taxable income, answer yes
6. Then give a brief description of the income and the amount listed.. Here you will enter 1099 NEC income excluded for FEIE purposes and record the amount of net income with a minus sign in front of it.

Now to report your foreign income.  Remember in this case, you will report the full amount that is recorded on the 1099 NEC. 

1. Click on Federal 
2. Click on Wages and Income  
3. Scroll down to Less Common Income
4. On Foreign Earned Income and Exclusion, click on the start or update button.