<p>Maybe I didn't title this the best, but here's the situation:</p>
<p>I heard from a friend who has gone through the college process about how I should manage my own money when it comes to getting money from the school and the government (through the FAFSA). I was told that, if I have a lot of money in my savings and checking accounts, I should think about transferring it to my parents' accounts while we apply for financial aid. </p>
<p>The reason I was told is because schools weigh the student's income at 20%, while the parents at only around 5%. Based on this, it seems it would be more beneficial to transfer money so it weighs less in my parents' accounts. </p>
<p>As far as where the money is coming from, though, may make a difference. Over about four years, I've saved up nearly $7000 from teaching piano lessons privately. Because of this, it has not been taxed or anything, and as far as the government is concerned, its not a source of income and the only way it shows up is in my accounts. So in reality, it isn't "income," but it is money saved, nonetheless.</p>
<p>Is there someone who has gone through the college process who could shed some light on this? Thank you so much!</p>
<p>Actually, if you are receiving payment for services, then the IRS DOES consider it income. So you’ve been hiding it from the IRS, and now want to hide it from the colleges and the people who process your FAFSA.</p>
<p>But, yes, if you have the money, colleges expect you to use it for your education. Financial aid is for people who do NEED financial aid, not people who do not want to pay for their own education. But it will be assessed at a lower rate if it is in your parent’s name, so if you want to che</p>
<p>It is fraud to hide it, but perfectly legal to open a 529 education savings account and deposit it there before you fill out the FAFSA. It will then be considered your parent’s asset and ‘weigh less’ than if it was your asset.</p>
<p>Unfortunately, the government does want a piece of everybody’s pie. Assuming you’re a dependent, you are liable for self employment income that exceeds $600 in a calendar year. You might be able to offset some of the income you’ve earned with expenses you’ve incurred to advertise, to travel to your students’s homes, to keep up your skills, or to tune your piano. </p>
<p>I should add that the only taxes you’d likely be required to pay are social security and Medicare, not income. Uncle Sam wants both employer and employee portions from you which adds up to 15.3% of your after expenses earnings. </p>
<p>I guess now I’m just a little confused. My stepfather is a personal banker, and he has been telling me this whole time that I have no need to report my “income” to the IRS. All of the payments either come to me as cash or checks, and since it’s not taxed, I’m not really sure how they can see it as anything other than a lot of gift money.</p>
<p>I will bring up the idea of an educational savings account, though, since that sounds like the best option. Honestly, I’m not a big spender (which is why I’ve been able to save so much), so most of that money will be going towards my education next year. </p>
<p>Additionally, I’m not even sure how much $7000 will make a difference in the financial aid calculation (since that money will deplete quickly once I start paying for the education), but nonetheless, thank you all of the information!</p>
<p>And of course, it sounds like my understanding of my own situation is not correct, so if someone could explain it more to me, that would also be greatly appreciated!</p>
<p>The assets will be assessed as of the day you file the FAFSA, so spending the $7,000 over the course of the year isn’t going to bring down your EFC at all - since your FAFSA is filed much earlier. If your parents have a larger income, it could be that you may not be eligible for the Pell grant or the subsidized loan anyway, so adding in 20% ($1400 in this case) of your assets to the EFC really wouldn’t have a huge effect. </p>
<p>No matter what your EFC is, you still will have eligibility for a $5,500 unsubsidized loan. </p>
<p>Your father is wrong. It is not a gift if it is being given to you for a provided service. They would not be giving you this money if you were not teaching piano, correct? And is the “gift” a suggested amount? $7000 in savings suggests that you were receiving at least $2000/year, which is a whole lot of gift. </p>
<p>Your step-father is wrong in this case. He is correct in that it would be hard to trace, and so the IRS could not get evidence to go after you for taxes, but he is incorrect about it not being considered income. See the following:</p>
<p>Regarding your taxes, your stepfather may be relying on the fact that you’re unlikely to be caught by the IRS since you get paid in cash and checks. Legally, however, you’re self-employed and have a low income threshold for having to file a return. It could be though that he just doesn’t know there is a lower threshold for the self-employed.</p>
<p>It’s possible your stepdad was unaware you were earning so much. It’s also possible he said that because the odds of the IRS coming after you are slim and none. Or maybe he sees some expenses related to your teaching that he and your mom are underwriting and he figures he’ll save everybody you paying them and them gifting it back to you (which would be the hundred percent legal way). Or it may just be that he’s a banker not a CPA. </p>
<p>I do make my kids report their off the books income and file quarterly taxes. I tell them it gives them the right to rant and rave about government waste and it also shows them how the government is just as likely to be an obstacle to success as anything else. </p>
<p>As a private piano teacher, you would be considered to be self-employed. If after deducting business expenses,your income is more than $400 in a year, you owe federal self-employment taxes. You may or may not owe state taxes as well. If your self-employment income is relatively predictable, the federal government expects you to pay estimated taxes on a quarterly basis (that is in four installments over the course of the year). At minimum, it looks like you should be filing the Federal Form 1040, Schedule C, and Schedule SE. <a href=“Self-Employed Individuals Tax Center | Internal Revenue Service”>http://www.irs.gov/Individuals/Self-Employed</a></p>
<p>Your step-father probably thinks that the time involved in helping you through the paperwork isn’t worth it because you’ve been paid in cash and that the federal and state tax agencies aren’t likely to figure out that you should have been paying taxes. But his laziness is no excuse. Sit him down. Ask him to help you file your back taxes using the 1040x forms for each year that your taxes weren’t paid, and hit him up for any delinquency fees that you find are owed. He should cover those for giving you such bad advice.</p>
<p>All that said, it is true that the money in any accounts where your social security number is the first on the account is considered by the FAFSA to be your money, and if you have an account where a parent’s name appears first, then that would be considered to be parental money. But as others have written above, depending on your parents’ income, what you have in the bank may not affect your eligibility for federal aid much at all. Print out the current formula, and run everyone’s numbers through it. <a href=“http://ifap.ed.gov/efcformulaguide/attachments/090214EFCFormulaGuide1516.pdf”>http://ifap.ed.gov/efcformulaguide/attachments/090214EFCFormulaGuide1516.pdf</a></p>
<p>And the income you make in 2014 definitely has to be reported on the fafsa and other finaid forms regardless of whether you’re going to file taxes. But for fafsa there is an income allowance of around $6200 for the student.</p>
<p>Also, might you be including information about teaching piano lessons as you fill out college applications and write essays? Then how will you explain to the colleges why you haven’t filed tax returns if that comes up since it is obvious that you are working?</p>
<p>Well clearly I have a lot to be discussing in the next few weeks with my stepfather…thank you everyone for the advice!</p>
<p>My guess is that he had some reasoning that he hasn’t discussed with me, as far as why I haven’t reported anything to the IRS. I certainly do not want to jeopardize anything with my future college! </p>
<p>Honestly, the “money” aspect of my piano lessons has never been a huge concern. I began doing it because I really enjoyed doing it, so I pretty much just collected the fees for the lessons and never made a big deal about it. I didn’t realize I had so much more to worry about here! </p>
<p>He wouldn’t likely have to deal with such small amounts of income. People who make a few thousand a year are not using the services of personal bankers. </p>
<p>You asked and people here are telling your the letter of the law and it is only right that you understand what it is. There is one level that triggers a tax return for wages earned and there is another level that triggers a self employment tax. This is the letter of the law and available information on the IRS website and I think you were given links.</p>
<p>It is true that most students fly under the radar on smaller amounts and cash payments.If you had a salary you won’t have to file taxes for under 6k a year and that is all that most people are aware of. I personally would not go and file back taxes on such a small amount. </p>
<p>Managing investments and savings plans is a very different beast than being knowledgeable about current tax code. It might very well be possible that a personal banker isn’t totally up to date on the filing requirements. I guess it would just depend on what his specific job entails. </p>
<p>Personal banker in my bank is one up from the teller, he really doesn’t seem to be especially omniscient. The last time I saw one was to sort out a PIN stuff up. </p>