You may see a group of 9000-series accounts on your financials labeled Unallowable Costs, for example:

Federal grants like SBIR awards from NSF or NIH reimburse the costs you incur on the project. But the grant terms say certain costs can't be paid with federal money. You can't use grant funds to pay federal income tax, for example. The same goes for some advertising and marketing costs and some legal costs.

We book those costs to Unallowable Costs accounts so they're never included in a drawdown or reimbursement request.

For income tax purposes, these are usually just regular business expenses. Unallowable for the grant doesn't mean non-deductible. Check with your tax preparer for your specific situation.