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Ira: Your interpretsrion of my question is correct. However, i did not quite understand how that would work. For the 2020 tax return, would I show the actual amount received (say, $10,000) and a part of it (say, $6, 000) as expenses, thereby paying taxes on the difference amount of $4,000? Then, assuming I spend the remaining amount of $4,000 next year, I would show zero income and a loss of 4,000 in the tax return for 2021?

Yes, that is correct. The "problem" is that, using your numbers, you would also pay Medicare (and possibly Social Security) tax on the $4,000 income this year. Next year, while you would get the benefit of the $4000 loss on your income tax, you wouldn't get a reduction on your Social Security/Medicare.

That's why Bill suggested seeing if you could have the grant disbursements scheduled to match the timing of your anticipated expenses.

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