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Comment by 1auralynn

3 years ago

Yup, I am screwed because I got an SBIR grant in 2022. The default indirect cost rate is ~30%. In this new scenario, it should be something more like 60%, which reduces the usable funds that can be spent on actual development (IF you can even get a high rate like that approved by the govt agency)

EDIT: By "screwed" I mean that I'm facing a $100k personal tax bill because the company is an LLC taxed as an S-Corp. You can say all you want about lack of planning, etc, but the reality is that many times very small business do not have the budget for a high-end business accountant on retainer. If I were to try to "plan better" to avoid this situation, I would have just not written the grant or tried to do any of it and gotten a FT job or something instead. It's an innovation-killer.

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1auralynn

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pclmulqdq  3 years ago

I am personally very happy that my LLC's SBIR grant proposals in 2022 were all turned down, because I wasn't thinking about the disastrous tax consequences.

  • 1auralynn  3 years ago

    Right? Like, should I even bother applying for Phase II in September? There is no way I could afford to pay taxes on $1.8M.

    • pclmulqdq  3 years ago

      IMO you should talk to an accountant. It's pretty cheap to do that in comparison to the tax bills (my accounting bills are <$1000/year for a similar situation to you). Phase II is a lot of money, and you may be able to get some venture debt now that you're past Phase I to cover what the SBIR doesn't (ie the taxes). There's also some chance that the law around this will be reversed.

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mNovak  3 years ago

Which agency is this from? 30% is an insanely low indirect rate. My experience comes dominantly from DoD SBIR, where for Phase I's you propose your own indirect rate.

But yes, this law is awful for SBIR companies, because we're forced to give a giant out of pocket interest-free loan back to the gov

  • 1auralynn  3 years ago

    NIH, it's 32%. You can negotiate a custom one somehow, but I haven't waded into those waters yet.

  • pclmulqdq  3 years ago

    I'm guessing this was NSF or HHS, both of which have tons of rules. DoE and DoD are much less controlling.