S-corp -- help with the CSS

Paying for College
1

<p>I'm a dad currently struggling with the CSS in support of my son's college applications. Any suggestions as to how to handle the following situation would be appreciated.</p>

<p>My father sold his manufacturing business, an s-corp, 19 years ago to my two brothers and me. The business is located in Wisconsin, where my brothers live -- one is the president, the other is the head of production. I live in Maryland and am not an employee. (I'm temporarily unemployed due to difficult business conditions.) </p>

<p>The firm's revenues flow through my 1040 and inflate my AGI, but of course I have to include that income on my CSS. In addition, the firm issues distributions to pay the company's taxes, which I believe increases my "other non-taxed income" on the CSS. </p>

<p>This would not have been a problem from 2001 to 2007, during which time the company experienced losses. However, the last two years the company did well. I estimate my 2009 s-corp K-1 will generate about $140,000 in income on my 1040. In addition, I'll have received somewhere around $90,000 in distributions to cover taxes in 2009 on that income.</p>

<p>Is there any way to enter this information on the CSS and explain that the income is not available to me in any way to cover our household's expenses? Or is this a lost cause, in which case I'm better off not wasting my energy on the CSS (and FAFSA)?</p>

<p>Thanks.</p>

2

<p>I did my D’s FAFSA and CSS Profile this year (our first). My H has an S-Corp, and for the first time had negative income (line 17, 1040) in 2009.</p>

<p>I followed your post until you said the passed on S-corp income is not available for expenses. The IRS will view it as income regardless of what it’s used for.</p>

<p>One thought, there is a “Explanations/Special Circumstances (ES)” box on the Profile which allows comments. Perhaps you might consider using it to explain yourself.</p>

<p>I still did our Profile and FAFSA and turned them in regardless of our estimated EFC. The colleges and universities will have it on file, and one never knows what the future brings. It is a lot of work. Good luck.</p>

3

<p>I have an S corp. - and understand your situation. </p>

<p>Distributions shouldn’t increase your “other income”. Distributions are just cash taken from profit - and that profit IS reported as income already. One a profit is made, at the end of the year, it’s divided into the officers. You pay tax on that amount. So you are given distributions to pay that, but those distributions are not taxed again. You pay taxes only on profit…as if it’s income. Then that money is available to be “distributed”, if desired, but it’s not taxed when it is distributed. So you will have already reported this as income - via your reporting the PROFIT. But, as you’ve seen, when one year is way “up” or “down”, things get a little wonky. </p>

<p>You made $140,000 in profit (but no actually salary, just profit? If so…make sure you know about the 60-40 rule of salary/distributions…it’s vague, but - something for you to look at).</p>

<p>The $140,000 doesn’t come to you. But you must pay the income tax on it.</p>

<p>SO…the next year you take a distribution of $90,00 to pay those taxes, and I assume estimated taxes for 2009.</p>

<p>It is assumed that there is now $50,000 left for you to spend. If you do not also take THAT distribution (because you need it for working capital)…it can indeed be messy. That’s a boat I’m in too. </p>

<p>So you have $140,000 AGI
less $90,000 paid in taxes
(plus/minus any/all other income/expenses). </p>

<p>Definitely fill out the Fafsa. And you can try and explain that you don’t GET these profits, but…they’re gonna wonder…with no salary, no job, and no profits beyone what you use to pay taxes…on what are you living? So…probably need to explain that.</p>

<p>Happy for anyone to correct me - this is how I remember it.</p>

4

<p>I’m a working partner of a S-corp. For the last three years, we showed $60,000 in profit of money we paid on loans. Half that profit was my share which shows on my income. My family income therefore is $130,000. But my actual income is $130,000 minus $30,00 minus $11,500 in taxes on that $30,000. My company did not have the capital for distributions for taxes. Any way to handle this?.&lt;/p>