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Level 2

Is a Grant Subject to Self-Employment Tax?



I am developing a video game under my SMLLC formed in New York. I have recently moved to Virginia but have not formed a foreign LLC here since I'm not conducting any business in Virginia nor in New York; my game is not yet for sale and the business has no other form of revenue. 


I have been fortunate to be awarded a grant with no strings attached, from an entity outside of both NY and VA. The grant was given as a result of reviewing my game in its current state, but there is no condition that the game must be completed or that anything else must be done in order to receive the grant. I have the option of receiving the grant either through my LLC or personally. I would like to receive it through the LLC since there are some previous business expenses I'd like to write off, but I'm worried about two things:



1. If I receive the grant through the LLC, will I end up paying self-employment taxes on it?


"Scholarships and fellowship grants that are not paid as compensation for services do not constitute income from a trade or business and thus are not included in an individual’s net earnings from self-employment."



I can't find anything on non-education and non-business related grants. Can I include the grant as income for the business and pay the appropriate federal/state income taxes on it, but exclude it from self-employment taxes since there are no conditions or services attached? Also, would I be paying NY or VA income taxes?



2. This one is less tax-related, but throwing it in here in case someone has experience with this. Since my LLC is based in NY but I'm residing in Virginia, I'm wondering if receiving the grant through the LLC will trigger a business activity in Virginia, causing me to form a foreign LLC here, or if that will not be the case because:


"Like most states, Virginia's LLC Act specifies certain activities that do not constitute transacting business in the state. The items listed include: [...]

- conducting an isolated transaction that is completed within thirty days and is not one in the course of similar, repeated transactions"




Thank you in advance for any advice!

1 Reply
Level 15

Is a Grant Subject to Self-Employment Tax?

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