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Hello everyone,

I am a researcher at a university. A non-profit organization has agreed to fund my research, but they will report the amount of the grant on form 1099, which they will send me early next year. They said that, when filing my taxes for the year 2020, I can file a schedule C along with form 1040 and claim the expenses I incur on the research back.

As you likely know, Schedule C is used to report income or loss from a business one operates as a sole proprietor. An activity qualifies as a business if (a) the primary purpose for engaging in the activity is for income or profit, and (b) one is involved in the activity with continuity and regularity.

In other words, I am supposed to treat the amount of the research grant as business income, and the expenses I incur on the research project as business expenses.

In this regard, I have two questions.

First, I have never heard of anything like this before. Has anyone else dealt with a similar situation? The thing that’s troubling me is that the primary purpose of my research endeavors are (obviously) not for profit and the IRS may not view the activity as a business, especially because the net profit from the activity will be zero (I will obviously spend all the money received on research related expenses, though not necessarily in the same year; see next point).

I just don't want to get into trouble with the IRS or increase the likelihood that my tax return will be audited.

Second, do I need to spend the entire amount received in a given year in the same year? My research projects often extend for a few years, and it would be helpful for me to spread out the spending over at least a couple of years. Will Schedule C allow me to defer some expenses to the next year?

Any insights would be appreciated. Thank you in advance.
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