What expense category is Grant Writing Fees?

For nonprofit organizations, securing funding through grants is a vital and continuous process. Many organizations hire professional grant writers or consultants to prepare and submit compelling proposals to foundations and government agencies. The fees paid for these specialized services are a necessary and fundamental cost of fundraising.

For accountants and nonprofit leaders, it is essential to categorize these expenses correctly to ensure accurate financial reporting, demonstrate fundraising efficiency to stakeholders, and comply with IRS requirements. This guide will clarify how to classify grant writing fees based on standard accounting and tax principles.

Grant Writing Fees Category

The fees you pay to a professional grant writer or consultant are a direct Fundraising Expense.

While the provided IRS documents focus on for-profit businesses, they establish the principle of deducting professional fees. IRS Publication 334 allows for the deduction of fees paid for professional services. 

For a nonprofit, grant writing is a professional service directly related to its core fundraising activities. Therefore, these costs are program-related expenses, specifically for fundraising, and not general administrative overhead.

Important Considerations While Classifying Grant Writing Fees

The most critical factor is distinguishing between hiring an external professional and having an in-house grant writer.

Independent Contractor vs. Employee

• Hiring a Grant Writer (Contractor): When you pay a freelance grant writer or a consulting firm, the fees are a professional service expense. IRS Publication 334 requires that if you pay an individual contractor $600 or more during the year, you must report these payments by filing Form 1099-NEC, Nonemployee Compensation.
• In-House Grant Writer (Employee): If you hire a grant writer as an employee, their pay is a wages expense and must be processed through your payroll system with all applicable taxes withheld.

Fundraising vs. Administrative Expense

Proper classification is key for nonprofit financial reporting. Fees paid for writing and submitting grant proposals are a direct fundraising cost because they are incurred for the specific purpose of soliciting contributions. This is different from general administrative costs like office rent or utilities.

Tax Implications and Recordkeeping

Properly accounting for grant writing fees is essential for accurate financial statements and IRS reporting.

How to Report the Expense

While the provided documents focus on for-profit tax forms, nonprofits have their own specific reporting requirements (such as the Form 990 series). On these forms, grant writing fees are reported as a fundraising expense. This is a key metric used by the IRS, donors, and watchdog groups to evaluate a nonprofit's fundraising efficiency.

What Records to Keep

You must have documentary evidence to substantiate all grant writing fees. Your records should include:

• The signed contract or service agreement with the grant writer.
• Invoices from the writer or firm detailing the services provided.
• A copy of the grant proposal that was prepared.
• Proof of payment for all fees.

How Fyle Can Automate Expense Tracking for Grant Writing Fees

Fyle helps you manage and document payments to grant writers, ensuring every invoice is captured, coded, and ready for reporting.

• Centralize Invoices: Forward or attach your grant writers invoices directly to Fyle for automatic and accurate data capture.
• Track by Grant or Program: Code each fee to a specific grant proposal or program for precise cost and success tracking.
• Create a Clear Audit Trail: Fyle keeps the grant writer's contract, invoices, and proof of payment together in one digital record.
• Automate Your Accounting: Sync the categorized fundraising expense directly to the correct GL account in QuickBooks, Xero, NetSuite, or Sage Intacct.