Negative AGI

My oldest child is a sophomore in HS, getting ready for College. I am starting to educate myself on paying for it. I own several small businesses, structured as LLC pass thrus and understand they will “not count” on Fafsa. I take about $200k in salaries but pay virtually no tax due to large amounts of depreciation. My tax return (joint with wife) has a negative AGI for several years now and will likely have that for a few more years. Will the negative AGI “count” or do they add back depreciation like a bank would if I sought a mortgage?

FAFSA does not. But schools using CSS PROFILE most likely will. Also some schools have supplemental questions they may ask in addition to taking FAFSA numbers. It comes down to the school

Negative AGI is counted as 0 in the FAFSA EFC formula.

If you have $0 in AGI, there is no question you will be selected for verification. The colleges will justifiably want to know how you are paying your daily living expenses…so be prepared to tell them how you are paying your rent, utilities, food, insurance, etc with NO income.

Keep in mind also, for institutional need based aid, many of those deductions you take for IRS tax purposes and are allowed for IRS tax purposes will be added back in as income for financial aid purposes.

And lastly, as self employed business owner, the net price calculators will not be accurate for you.

Surely you really have more than $0 in actual family income even though for tax purposes that’s not what you file.

And as noted, for schools using the Profile, expect to have to show it all.

Even FAFSA schools will expect you to either link to the IRS Data Retrieval Tool, or provide a tax transcript. Seems to me your business monies won’t be as not counted as you think.

@BelknapPoint ?

We know a number of folks, but one in particular with , yes, millions in assets and negative to under$25k AGI. Could b because they are retired, inherited a chunk, divorce and commonly, have family businesses. Their kids get PELL, subsidized loans and other financial aid. Assets not in the picture if the simplified means test comes to play.

Again, it depends upon the school. For some scholarships and school grants, additional questions , request for assets might be asked. Yes, verification likely if one is living very high on very low income.

You should make sure that you apply to at least two schools that you will be able to afford even if you get NO financial aid at all. In your situation it is very difficult to predict how much if any need based aid you will get.

The small business owners and farmers that I know have nearly all sent their kids to in-state public universities (or to universities in Canada). The only exception was one couple who could easily afford to be full pay at any university anywhere.

You will be eligible for full Pell if you have a negative AGI, and assets will be ignored for federal aid purposes. If a school is FAFSA-only for institutional aid, you may receive a good aid package. As others have noted, schools that use Profile or collect tax forms from all students for purposes of awarding institutional aid will give you the Pell but will update your EFC for institutional aid. I verified more than a few FAFSAs with 0 EFC where the parents had significant business write-offs. I did not request information about how they paid their bills with such a low income, because it was clear that they actually had income. Clarification is only required when it’s unclear how people are able to survive given the available information.

Oops … assets WILL be counted, since second part of the simplified needs formula requirement won’t be met. But parent assets have a protection allowance.

Our parent asset protection allowance was about $7,000 for the 2020/21 FAFSA.

If the family has no income, the student could qualify for free/reduced lunch to meet the other part of the requirement for simplified needs. The student doesn’t actually have to eat the lunch, just qualify.

I’m bothered by this. This parent takes $200,000 in salary per his post…but pays virtually no taxes because of depreciation…but he takes $200,000 in salary from multiple businesses.

That is quite different than a family that actually has a very low income.

I am troubled that this parent is looking for need based aid for his student…even if technically he qualifies for it.

Other things this parent needs to consider…any monies put into tax deferred retirement accounts will be added back in as income. So…how much per year do you contribute to tax deferred retirement accounts for you and your spouse?

As noted above, the self employed business owner, regardless of the amount they pay for taxes, can be very surprised that they are expected to contribute a large amount to the college education of their kids.

@Dadwith2kids3800 do you have any college savings for your student?

How much can you pay per year?

Are you anticipating that this student will get accepted to a college that meets full need for all accepted students? Colleges that don’t meet full need for all will likely not give you a huge amount of need based aid…because they don’t have to. Those colleges that meet full need for all use the CSS Profile which will look at every single dime related to your businesses. The exceptions are Princeton…but their form also looks in detail at every penny. University of Chicago uses the FAFSA only and meets full need.

Those full need schools accept a small %age of applicants.

Will this student perhaps be a contender for significant merit aid. Is he a very high achieving student who will also do well on the ACT or SAT tests?

What about your instate public universities? Will they be affordable?

So…with your $0 AGI…the only guaranteed need based aid awards are the $6000 or so Pell Grant, and a $5500 Direct Loan for freshman year. Anything beyond that would not be guaranteed. Some schools give SEOG to early aid applicants who are low income. Some kids get work study.

For the Profile Schools…there is no way to even guess…as these schools have varying formulas and ways they deal with self employed business owners. But again I say…they will see every single business expense you have…and will scrutinize every detail of your financials. Oh…and some use primary home equity in the equation too.

No, someone in the family actually must have received a means-tested benefit. The regulations specify receipt. The person who received free lunch could choose not to eat it, but it must be applied for and approved to count as received.

Except free/reduced lunch, SNAP, etc are based off of gross income not AGI.

I meant qualify, as in apply for and be granted. You don’t have to use the benefit and many kids will not eat the free lunch.

They gross 200K/year. They won’t qualify for free/reduced lunch.

It depends upon the school as to whether they qualify. I know schools that give free lunch to all and will so certify.

There are many ways a person can get PELL and other need based grants even making a lot of money and having assets. Just as one can have a very low tax liability with a large income.

And there are some schools that give free lunch to everyone.

This student needs to qualify for the federal free/reduced lunch program, not something the school decides.

I’m pretty sure getting free lunch from a school that has elected to give all students free lunch whether they qualify or not is not what the “received means tested benefits” question in FAFSA meant. If so, next year will be a free-for-all as pretty much every school in the country is handing out free lunches now.

Schools can and often do request documentation of receipt of means-tested benefits.