How should we account for grants that reimburse expenses on tax returns?

[Fat Poutine]

Can you net it with the expense so that it reduces the expense but doesn't increase the total income?

I have seen some CPAs just account for the grant as "Grant income" even though it is supposed be a reimbursement. However, that becomes a problem for R&D expenses. This year we are supposed to capitalize our new spending and depreciate only 10% of it...

For example, I have 100k in R&D salary of which 30k is reimbursed by a grant, can I reduce the salary expense 30k so I can capitalize the remaining amount (70k)?

Or, do I need to report 30k as income, expense only 10k in depreciation, therefore have a 20k taxable income (?!)

[JosephS1]

The grant application and terms should determine how you need to account for the grant proceeds.  Generally, grants are not usually guaranteed and the expense incurred for reimbursement would have been made whether the grant was in fact granted or not.  You do not say if this was the situation or not.  I agree with the CPA's you have spoken with that the grant should be labeled as Grant Income and the expenses listed in full rather than reduced by the reimbursement.  I can site no specific guidance on this other than for full disclosure purposes.

Look to your application and terms for how to treat and record the grant proceeds.  I do yield a bit as far as full disclosure if the expense was listed in full and then was followed by:  "Less: Grant Proceeds in the amount of XXX" that would satisfy full disclosure in any financial statement but I admit does not solve your situation in TurboTax.

@Fat Poutine 

[Carl]

From what I know, which is very little, as I am not anywhere close to knowledgeable enough on this, grants are reportable income. It's taxability is offset by the tax deductible expenses the grant is used to pay for. If the expense is not tax deductible, then the relevant grant amount is taxable income to the recipient.

Overall, how you deal with it depends on what the grant was specified for, and what the funds were actually used for in detail.