The net income from our small business is quite small. Our total income is average, low enough to get significant aid at meets need schools. What worries me is that the profile asks for the gross receipts which is quite high and then the expenses. It seems like they might just subtract expenses from gross receipts and use that number somewhere in their FA calculations. The problem is, this does not count cost of goods, which is a large majority of our expenses. I’m sure this is true for many other businesses too. The next line on the tax forms is the net receipts, but the Profile specifically asks for gross receipts. Will the high gross receipts screw me of financial aid? Again, towards the beginning it did ask for net business income and that was low, but I am wondering how the gross receipts are looked at and if that is actually used to determine aid. One of the business supplements my parents had to fill out included cost of goods I believe, but some of my schools don’t require a business supplement.
I know one problem many business owners have is deductions being added back, but cost of goods is pretty much as legitimate as an expense as you can have. Surely, they can’t penalize you for that?
My guess is they will look at how much of a difference there is. I mean if you have gross revenues of $1 million and your AGI is $30,000, it’s likely to raise a red flag.
@thumper1 It is a pretty large difference, but not that extreme. Is it safe to assume they don’t actually use gross receipts or (gross receipts-expenses) in the actual financial aid calculation though? That just seems unreasonable especially as you report net income.
@thumper1 I still do think it is reasonable to have cost of goods be a a large portion of the expenses, yet they don’t include that in the profile. If they ask for additional documentation, that is fine. Its a gas station store type business and cost of goods is basically everything…
add in the cost of goods to the expenses calculation.
if that is the method your parents use when calculating what they owe the IRS[ which is the way we do it- we are both self employed -I have a clothing business, my hubby has a real estate business] , then that should be good enough for the profile colleges.
@menloparkmom The profile directions tell you to use numbers from specific lines from the tax forms. The expenses says to use line 1a on our tax form. I believe cost of goods is line 1b, so its pretty explicit that cost of goods should not be added onto the expense line. FWIW, the Collegeboard Business Supplement allows a line for cost of goods, but some colleges don’t want the supplement.
I did some googling and saw that average income is about ~2% of gross revenues for gas station/convenience type stores. Ours was a little bit higher of a percentage, so it seems like our numbers do check out. As long as they use our personal gross income which I’ve seen on here as being the biggest factor for FA, then I’ll be fine.
Cost of goods for a gas station is probably cost of fuel from Texaco Inc or Chevron Inc or BP
I am sure oil companies provide receipts when gas stations pay them.
The cost of sodas and candy and milk and other convenience products bought from a “food & drug” whole sale distributors in the city
Gross Revenue =Whatever people pay at the pump for gas, and what they pay for food and soda and powerball tickets
@BoiDel This isn’t our scenario, but this is my dilemma in a hypothetical scenario. Say gross receipts are 500k, cost of goods is 200k, and other expenses are 100k. The profile does not consider cost of goods and only asks for the gross receipts(500k) and expenses(100k). I’m not talking about what needs to be paid taxes on, I’m talking about how colleges interpret the recipts and expenses data since they do not ask for cost of goods which is quite significant. In your scenario, yes taxes should be paid on 500k. But the profile would only show the gross receipts of 1M and operating expenses of 300k, there is nowhere to mention the 200k cost of goods.
@BoiDel Our business is just the store, no gas station. But yes everything is included in the gross receipts which is what I had to put down. The problem is it only asks for expenses excluding cost of goods which is pretty significant. They don’t take into account the cost of those foods, sodas, etc, only the fact that x amount of dollars were sold.
CSS Profile is also assuming that the money in a business you own is 100% available to you to pay for college. My husband has a partner who owns 50% of the business. Even if there is a net profit that doesn’t mean that 50% of that profit is available to us. My husband and his partner my be using that money to invest in the business. My husband can’t just take the money. It belongs to the business, not to him. The same goes for assets that the business owns. My husband does not have access to those profits.
We make a high enough income that we will not qualify for FA no matter what the FAFSA/CSS Profile show. However, some schools require that you fill them out in order to be considered for merit based aid so we filled them out. It struck me as terribly unfair to people who own corporations and have partners to be looking at the corporation’s assets and profits as if they are available for the taking.
@Proudpatriot I am a business shareholder myself so I feel your pain… but honestly how is that different from home equity, stock and bonds, rental properties, etc? They are assets, and can be liquidated, even though doing that may be incredibly difficult or even foolish.
The alternative would permit business owners to hide assets and minimize income to get financial aid benefit, which would (IMHO) be much more unfair, don’t you think?
There just isn’t an easy answer that is “fair” to everyone – like so many things. Business owners should compensate by taking every legal benefit and deduction they can.
One big question, which I have since I have not filled out a CSS profile myself: If you only own 50% of the business, can’t you only claim 50% of those assets?
@postmodern I think the difference is that the assets you mention above can be liquidated if you want to liquidate them. The school is free to assume you can liquidate assets that you own outright. The fact that you don’t want to liquidate them is irrelevant to the school. You have the ability to sell them, borrow against them, or whatever. I see that is a simple disagreement between the owner of the assets and school. Since they are granting FA they can do whatever they want.
The thing about business assets in a corporation where you only own part of the stock is that you cannot just take the assets in the company. They belong to the company. Of course, if you own 100% of it that is completely different. Then you can take whatever you want to take. But when you own part of a company the managers of that company decide how to allocate the assets. The owner of the stock can’t just take the money.
Yes if you own 50% of the company you only have to claim 50% of the assets but the truth is that you cannot just take 50% of the assets of a corporation if you are not the sole owner. Of course the company takes every legal benefit it can to reduce the profit of the company. However, those expenses are expenses of the company. My husband and I both receive a W2 (as does every other employee of the company). Our income from the company is reflected in our W2. There is no other money available from the company.
As I stated above, I do not expect that we will qualify for aid. I think there is a difference between owning part of a corporation and owning all of it. For modest income people this can be devastating as it appears they have a huge amount of assets that they do not really have. It can be even more devastating if those assets are not liquid (inventory).
How do they “not really have” the assets? They own part or all of a business, and that business presumably has a value. Yes, it may be next to impossible to immediately liquidate some or all of the assets to pay college expenses (especially if, as you point out, there are other owners who have a say), but that doesn’t mean that they don’t own business assets that have a value.
