<p>My parents did not fill out a Schedule C or 1120S or anything like that. They clearly are required to. How will this affect my aid?</p>
<p>Your parents have 1099 and/or S-corporation income? Financial information from those forms go into the 1040 on specific lines, and add to the adjusted gross income that your parents must report on FAFSA. If your adjusted gross income amount is incorrect, it can be corrected on FAFSA after your initial filing. Your parents probably have a bigger IRS issue than a financial aid one if they’re not reporting income correctly.</p>
<p>Thank you very much for replying.</p>
<p>Sorry I’m not very familiar with taxes, but their small business is the only source of income we have. We are not an S-corporation.</p>
<p>My parents don’t underreport income, they just report earnings as wages instead of company profit and from looking at the documents we sent in, we don’t report financial specifics about our business like you would on a Schedule C so I’m wondering what my parents are doing exactly and how this will affect my aid.</p>
<p>If they don’t have an S-Corp, they don’t need to file Form 1120S. If they don’t use a Schedule C, they are missing out on some business deductions.</p>
<p>It sounds like they could really use some help on their tax preparation. They may find they can pay less in taxes than they have been, so it would be well worth paying a professional to help them.</p>
<p>I don’t think, on the face of it, you have a financial aid problem, per se. If they are reporting income honestly, and doing so in a way that is consistent with what they are reporting to the IRS, then you should be fine. The main problem I see is that there is a good chance they are paying more in taxes than they are required to.</p>
<p>Thank you so much 'rentof2, I’ve been stressing over this for hours thinking my aid would be dramatically affected because we messed up our taxes.</p>
<p>Again, I’m unfamiliar with how taxes work, but aren’t my parents required to file a Schedule C or something like that since their small business is their job? I thought it was a bigger deal than missing out on some deductions.</p>
<p>If they’re sole proprietors of a small business, they would normally have Schedule C income rather than W-2 income from wages, unless they’re running everything through a payroll service and are paying themselves that way. If so, it’s very possible they’re paying more social security (FICA) than they would otherwise need to with Schedule C income, and are missing out on possible tax deductions as 'rentof2 says. A couple of hours with a CPA who is expert in small businesses would probably be well worth the cost.</p>
<p>Yes, an unincorporated business requires schedule C. You can’t just decide not to file it even if you are declaring all the income somewhere else.</p>
<p>Are your parents paying SE (self-employment) taxes? How are they calculating it? This requires form SE? How are they reporting earnings as wages? This would require getting W2 forms from the business…</p>
<p>Not sure how any of this would affect FA as long as income is somehow correctly reported and all the required taxes are paid, but it sounds like they are rushing towards an unpleasant meeting with the IRS.</p>
<p>And if your parents are required to send in their forms for verification and they are obviously wrong (such as no W2’s for earned income), I don’t know what would happen if anything.</p>
<p>Don’t mean to stress you out, but it sounds like your parents need some tax help.</p>
<p>Yes, vballmom, I believe that is what they are doing, they have been doing it this way for years as far as I can tell.</p>
<p>My parents actually do have a CPA file their taxes but from what you guys have been saying, he’s just been doing it this way and causing us to miss out on deductions. The problem is my parents don’t understand the tax code very well and aren’t really making any effort to understand it. They blame each other all the time for money problems and dealing with this sort of paperwork. This is really unfortunate since I am going to a private college next year, which even after generous aid will be quite expensive…</p>
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This would be possibly criminal negligence if that is in fact what is happening. It sounds like your parents need a new tax person.</p>
<p>I’m not a tax pro, but my understanding is that if you own a business as a sole proprietorship, you can’t turn yourself into an employee by putting yourself on your own payroll. You are an owner by definition.</p>
<p>Who is paying the employer share of the SE tax in this situation? When you are self employed, you have to pay both halves.</p>
<p>It is a little confusing how a CPA is not advising your parents to file a Schedule C, but of course I don’t have the whole picture. I believe the owner of a sole proprietorship can pay him or herself as an employee in the sense of merely running his or her income through payroll, but that doesn’t actually make them an employee, because they are in reality an owner. Consequently the owner cannot deduct his or her own “wages” as a business expense. That doesn’t sound like something your parent(s) are doing anyway, because if they’re not filing a Schedule C they’d have no where to deduct it. Notrichenough raises a very good point about the self-employment taxes too.</p>
<p>Anyway, that’s all tax stuff and may or may not have anything to do with your financial aid. I think your parents should go see another CPA, just for a consultation if nothing else. Maybe their current CPA understands something about their business or income that we don’t, but it would at least be worth getting some confirmation about that from another professional’s perspective.</p>
<p>You mention you are planning on going to a private college…was it one that required the Profile? That has a specific business supplement. If your parents filled that out, then the schools will deal with the info they have. I’m not going to say whether or not your parents are accounting for their business correctly or not. Like rentof2 says we don’t know your parents business or how the CPA is structuring the taxes. Have you received financial aid letters yet or are you waiting for them? Generally if the colleges want more info they will contact you.</p>