HELP!! -Business Inventory - College FAFSA

[stewy]

<p>If there are any experts here in the area of small businesses and college financial aid, please help me out.</p>

<p>Scenario: I am in high school, started my own business (on ebay) 3 years ago. I buy and sell old drums, and starting out with a few hundred dollars I have purchased and sold, cycling over and over again, to where I now have an inventory of near $100,000. I have made minimal profits though, as I have kept funneling what I make off of drums into the business. </p>

<p>I am now a senior applying to colleges and I was just getting the FAFSA filled out.
Putting $100,000 into my inventory/assets it comes up with an expected student contribution of around $22,000 a year. </p>

<p>I talked with an accountant last year, and was told that FAFSA wouldn't take account of inventory that was still part of a business.</p>

<p>So what do I do?
Basically, with how it looks right now, after 4 years of college I will practically be back at square one. It seems I would have been no worse off if I hadn't done any of this in the first place.</p>

<p>I just did a search of old threads and one said that putting money in a Roth IRA would not need to be put on FAFSA...?
Say I sold all inventory, wouldn't the profits be put on FAFSA regardless of what I do with the money?</p>

<p>Please provide insight.
Thanks</p>

[swimcatsmom]

<p>There is a rule in FAFSA that assets of a small business owned and operated by the family do not have to be reported on FAFSA. I think this could apply to these assets though I am not exactly sure.</p>

<p>From
[Completing</a> the FAFSA 08-09/The Application Questions(43-45)](<a href=“http://www.studentaid.ed.gov/students/publications/completing_fafsa/2008_2009/ques3-4.html]Completing”>http://www.studentaid.ed.gov/students/publications/completing_fafsa/2008_2009/ques3-4.html)</p>

<p>

Assets that are not reported</p>

<p>Below are examples of assets that are not reported:</p>

<pre><code>* Principal place of residence/family farm. Your principal place of residence is not reported as an asset. Neither is your family farm if the farm is your principal place of residence and your family “materially participated in the farm’s operation.”
*** A small business with 100 or fewer employees. If your family owns and controls a small business that has 100 or fewer full-time or full-time equivalent employees, do not report the business as an asset.**

</code></pre>

<p>finaid has more information on this ruling here
[FinAid</a> | Financial Aid Applications | Small Business Exclusion](<a href=“http://www.finaid.org/fafsa/smallbusiness.phtml]FinAid”>Small Business Exclusion - Finaid)</p>

<p>I don’t see why it would not apply to your business assets. It specifies that 50% of the business must be owned by the ‘family’ as reported on FAFSA - as you are one of the family I think it would apply. Double check the wording in case I am missing something (it is late and I am tired).</p>

[stewy]

<p>Thanks so much for providing that. Looks like that might have saved the day.</p>

<p>And more on this new info…
So I shouldn’t liquidate the inventory into money and invest it, because then it wouldn’t be considered a small business…? Is that correct? Or say if I leave $100 in inventory and invest the rest, would the investment be seen as an asset of the small business?
-And would they take the profits into account if I did that, because I would be taxed on all the money I make?</p>

<p>Thanks for the help!</p>

[swimcatsmom]

<p>I would say probably don’t liquidate it. You might be worse off if you liquidated it if it becomes taxable income as student’s income over @$3000 50% goes into the EFC. (student assets it is 20%). That is just an opinion - Having said that I am not a tax expert so I am not exactly sure how it would work as far as how the proceeds would be treated. You might want to consult an expert.</p>