<p>Depends on the business.</p>
<p>Keihanna:</p>
<p>Have you contacted the financial aid office with the information that you were laid off? they may be able to help your student out.</p>
<p>
[quote]
Depends on the business.
[/quote]
In what way, archiemom? Are some business types treated better in your experience than others? The issues I know of transcend what "type" of business it is.</p>
<p>As to the way folks see FA (not speaking to archiemom in particular but to all of us) I sometimes think this could be a case of the "grass is always greener on the other side of the FA fence". I know my perspective is biased by my personal experiences and the un-verified (but highly believable since they agree with me ;)) 'stories' I've heard. Sometimes I think I'm not the only one basing my "global" opinion on data from Hooterville. ;)</p>
<p>Can't say about "others". But our experience seems to show that a self-employed person (the honest part is assumed) in a professional services business with no office, employees, inventory...nothing to sell but time and experience... is not treated any differently (in the FA picture) than if the same person had earned their salary employed by a company. JMHO.</p>
<p>Well, that is certainly not what happened for one family I know very well. Two part paycheck folks with sheltered retirements and pensions and employer paid benefits in the same income bracket did MUCH better. I'd be glad to compare numbers but it might be easier on the thread just to say that I've put my experience out there many times. I think it's best to stick with that. ;)</p>
<p>(Admittedly we had other issues complicating matters, but on the ones applicable to the issues I raised, the self-employed person can and often does lose.)</p>
<p>sorry archiemom, I have to chime in with Cur on the self employed=screwed-on FA point, as one of 2 self employed parents in our family. Our kids were applying to colleges at her same time and we both went through the angst and the what the....??? moments in trying to figure out what kind of FA our kids were eligible for. The FAFSA requires self employed persons to ADD their SEP IRA deductions [which have been put away for retirement purposes] BACK onto their gross income for FA calculations, which is something no one earning a paycheck is required to do with their pension or automatic IRA savings deductions. That's just for starters.</p>
<p>
[quote]
The FAFSA requires self employed persons to ADD their SEP IRA deductions [which have been put away for retirement purposes] BACK onto their gross income for FA calculations, which is something no one earning a paycheck is required to do with their pension or automatic IRA savings deductions.
[/quote]
</p>
<p>I must be misunderstanding your post. I am NOT self employed. Neither is my husband. Both of us contribute to IRA's, 401Ks and 403B retirement plans...plus my state retirement (that one is mandatory...I don't even have a choice about that one). AND we the pretax contributions to ALL of those things for 2008 WILL be added back in as income on the FAFSA. Those retirement contributions ARE counted for us as well.</p>
<p>Let me be clear about this...my state retirement is pretax and it IS added back into my income each year on the FAFSA. I have NO CHOICE about whether or not to contribute to this retirement plan. It IS my retirement pension which I FULLY pay for (no retirement matching or anything like that). In my state teachers do not contribute to Social Security at all...so this IS our pension...but unlike SS there is no employer contribution at all (another issue, another thread).</p>
<p>The only thing that is not counted as an asset is the balance IN the accounts...but I thought the balances in SEP IRA's were not counted either...just the contributions for the tax year (like every one elses).</p>
<p>Exactly menloparkmom!--another small retail owner here. In addition, any smart small business owner must keep a small nest egg for when/if the business drops off during the winter months (we live in an area that has a strong summer season). The nest egg is emergency cash for mortgage or sometimes even to lend to the business to buy inventory. </p>
<p>There are many other issues for small business owners (self employed) regarding financial aid. Business inventory and business assets get figured in. So, forget about getting any financial aid.</p>
<p>Thumper is correct - *everyone *has their annual IRA contributions added back to income. The IRA contributions are listed on one of the worksheets and the formula adds them back, increasing income. From what I have read on CC there are other issues that affect only the self employed under FAFSA, but the treatment of IRA contributions is the same for all.</p>
<p>I thought business assets for small businesses (under 100 people) were excluded from FAFSA .</p>
<p>From the FAFSA instructions
[quote]
Business value does not include the value of a small business that you (your spouse and/or your parents) own and control and that has 100 or fewer full-time or full-time equivalent employees.
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</p>
<p>I don't have the knowledge to go into the specific details (accountant and H deal with that) but small business owners do get shafted---at least the ones who reports all income. The businesses like landscapers and others that have a large "cash" sales can "hide" some of the cash income. Sure, they are supposed to declare all income but they don't. Self employed house cleaners, housekeepers, landscapers, etc. are cash based (off the books) and don't report a fair amount of their cash income. For the small business owners who report all sales (the honest way as someone else on this thread mentioned), financial aid is relatively nonexistant. The best way to get the info is to ask your accountant and I'm sure he will confirm that small businesses get creamed when it comes to college financial aid.</p>
<p>One thing that may be happening here is that the loan from the aunt was not disclosed as a loan when applying for a mortgage. </p>
<p>When we got our first mortgage, my parents gave us a loan for the down payment. We had no trouble paying them back--with interest--on a pre-arranged schedule, plus paying our mortgage, plus saving some money. (In fact, we paid the loan to my parents off years ahead of schedule.) But if the mortgage lender had known that our down payment was a loan, not a gift, we would not have gotten the mortgage. And one has to sign papers to that effect. So your parents are in a bind re the $100K. What is going on with the rest of their finances I can't speculate.</p>
<p>BTW, both H and I are self-employed and/or small business owners. The FA packages S was offered ranged from great to awful. It porbably depends how small the small business is, and on the methodology of the school.</p>
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<blockquote> <p>any smart small business owner must keep a small nest egg for when/if the business drops off >></p> </blockquote>
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<p>In this economy...everyone should be trying to keep a nest egg for those times when a person might get laid off from a job. If your work is seasonal, at least you KNOW it's seasonal. An unexpected layoff from work is a whole other story. Maybe it would be better to prepay the mortgage and car payments for those months instead of having them sit in your account when it's time to file the FAFSA. And there is NOTHING illegal about prepaying bills.</p>
<p>I think we're comparing apples and oranges here. I do believe that the small business owner DOES get socked when it comes to the expenses of OPERATING their small business.</p>
<p>I am trying to tweak a memory of something I read out of my brain - but it (brain) is not quite cooperating (it is probably telling me to go bake pies and make cranberry sauce instead of sitting at my computer) so I might not have it quite correct. I think one of the things that self employed get a bad deal from is the treatment of self employed FICA contributions. Instead of reporting actual FICA deductions FAFSA estimates them based on tables withing the EFC formula - the tables do not accurately reflect the amount self employed have to pay (they have to basically make the portion of the contribution an employer would make - about 7% - in addition to the employee's portion everyone pays) so income is not reduced by the amount it should be. </p>
<p>For instance if my income as a not self employed person is $50,000 then my FICA contributions would be @ $3500. Although this is not reported on FAFSA the EFC formula does estimate a figure for FICA that is @ the correct amount of $3500 and the available income would be reduced by that $3500. A self employed person would be paying @ $7000 in FICA contributions but the EFC formula would only calculate $3500 so the income would only be reduced by $3500 rather than $7,000.</p>
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[quote]
I think we're comparing apples and oranges here. I do believe that the small business owner DOES get socked when it comes to the expenses of OPERATING their small business.
[/quote]
Thumper's quote probably relates best to the point I was trying to make. If all the sole-proprietor business produces is a salary to the professional and there are small to no actual "operating" expenses, then there is not an appreciable difference in being salaried or self-employed. On the positive side, we do have some flexibility (when there is income) with the prepayment of bills as well as the invoicing of expected income.</p>