TP is full time licensed day care provider. TP received cares act grant $4k and stabilization grant $22k from Virginia early childhood foundation. They added the 2 together and put on a 1099 misc in box 3(other income). I am telling tp it needs to be included on her Schedule c as other income subject to SE tax and no Virginia substraction. Tp is insisting (due to something she read or heard) it is not subject to se because of the way it was put on form 1099 and that Virginia cannot tax it. If you can give some help I sure would appreciate it.
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The receipt of a government grant by a business generally is not excluded from the business's gross income under the Code and therefore is taxable. However, a grant made by the government of a federally recognized Indian tribe to a member to expand an Indian-owned business on or near reservations is excluded from the member's gross income under the general welfare exclusion.
Unless VA has a specific exclusion, I think it is taxable business income subject to SE.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR -
I agree with ATSMAN.
It is definitely business income subject to SE tax. As a daycare provider, your client is probably familair with Tom Copeland, who is extremely prominant at teaching daycare providers about recordkeeping for tax purposes. You can point your client to a blog article he posted a few days ago:
Q: Where does the grant go on Schedule C?
A: You can include it either on line one (Gross receipts) or line six (Other Income).
Does your client have any reasons why she doesn't think Virginia taxes it? As ATSMAN pointed out, everything is taxable unless there is something to specifically make it not taxable.
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Thanks for the link. It helped answer a lot of questions. I guess she got her info from the local pipeline. You don't like my answer keep searching to you find the answer you want. My original answer then appears to be correct. Thank you.Comment
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