<p>I was accepted early action at a private college and given a financial aid estimate, which was already more than my family could afford without a few loans. However, I was relying on a specific grant (reduces loans for families making less than 75 grand). However, although my parents made less than this amount when they filed in 2006, the business brought in $20,000 more in income in 2007. That obviously makes a difference. Then I recently read that colleges have a bias against small business owners and tend to devalue their expenses. I know that no one can give me a definitive answer and I'm dreading the truth: Will my financial aid package change? A lot? For worse?!!
Do colleges take into account the fluctuating business income or is it just a yearly thing? </p>
<p>You may have read that colleges add back in some small business deductions- like depreciation and home office expense, etc- to increase income over AGI. However, if your parents have a business with less than 100 employees, they could leave that additional money “in the business” to be invested in business venues and not have to claim it as an asset in savings. If their business is a corporation they could even leave it in and not have it count as income.</p>
<p>I asked my H about that. He said that if money were left in corporation, the corporation would then be paying more taxes on that money. Just throwing that out there, but this is something I know nothing about.</p>
<p>It really depends on the set up of your business or corporation. For some small business profits or losses flow through to the owner’s tax returns so they are figured into the AGI of the owner. Thus the profits of $20,000 are counted as income. The profit is the different between gross income and expenses so the deductions for expenses are already figured in.<br>
As far as leaving money in the corporation, the profits from any given year are taxable on that year. The decision to leave money in or take shareholders distributions is a complex tax issue.<br>
Fluctuating business income from year to year is taken into consideration by the fact that you file the FAFSA every year. So if in 2008 the company shows less profit or a loss the FAFSA for the following year will reflect that.
As a small business owner, I don’t necessarily agree that the FAFSA is unfair to business owners.<br>
There are lots of advantages to owning your own business…you have to take the good with the bad.</p>
<p>Now that FAFSA excludes the value of a small business they are much more fair to small business owners, as a matter of fact, a business with 100 employees is quite medium sized, not small, so that could be a big money maker which is protected- like a franchised restaurant, etc.</p>
<p>Where is may look unfair is the health benes, retirement benes, etc that are earned and not added into the EFC formula by a guy with a designated benefit pension vs all the people contributing to IRA/401k, but you have to figure that it is just a formula doing the best it can to cover all possiblities. Some people will derive more benefit than others</p>