<p>I've heard from a wide variety of sources about the benefits of starting a business (legitimate, of course) as you approach the base-year for a son/daughter's college. The main effect being that, assuming an LLC or other corp structure that allows you to flow income/losses through your 1040, any losses by the business in the early years will have a direct effect of lowering AGI. </p>
<p>For the first time, I've just come upon a potential snag to this strategy. In the Princeton Review's "Paying for College Without Going Broke" - these benefits of running your own business are addressed in a separate chapter. However, I'm caught on a specific sentence that appears at the end of the chapter which states - "most schools that use the institutional methodology will disallow losses when determining eligibility for the school's own funds".</p>
<p>Is this true? Will schools that use the CSS profile in effect "add business losses back in" to your AGI? I'm aware that retirement contributions are added back in to AGI, but this is the first I've ever heard that business losses might be given the same treatment.</p>
<p>Anyone have any experience on this, or maybe I should be posting in a different thread that someone could recommend? I got a separate response from someone that indicated the College Board’s (CSS) default position is to add back business losses to the EFC. Is this really a college-by-college professional judgement type decision? Any small business owners out there with kids in college and experience with this tax/FA issue?</p>
<p>Yes, I file as a schedule c small business owner. A few years ago, my kid got accepted to quite a few meet full-need CSS Profile schools and we had a wide range of awards. It is hard to say exactly what they did with the figures because they are not that forthcoming (they just tell you what they expect you to pay) but, yes, it does look like they added things back in.</p>
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most schools that use the institutional methodology will disallow losses when determining eligibility for the school’s own funds
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<p>We don’t own a business but we have good friends who do…and their kids applied to Profile schools that met full need. The schools looked at their business expenses and added many things back in as income. This was not uniformly done in the same fashion by all the schools and as above, their kids’ awards varied by thousands of dollars.</p>
<p>Great - thank you for the responses. Sounds like bottom line is, as with the way many institutional aid components (home equity, retirement funds, etc) are evaluated, this will vary greatly by school and the best thing to do is talk to the FA dept at each school to understand how they handle this.</p>
<p>Thanks again, 2Colllege and Thumper. Much appreciated.</p>