<p>Looking at college aid calculators . I am self employed and spouse is stay at home mom . Question is : when they ask for salary and wages , I take it I state zero , as I am self employed . When they ask for how much parent one earned from work , do I put my net income there , or do I put it in the section asking how much did I earn from business ? If I put it in both spots , won't I be penalized ? thanks</p>
<p>Hopefully someone here will have the answers.</p>
<p>However, please be aware that if your child is applying to CSS profile schools, many of those schools will “add back in” some of your business deductions as income. This can be shocking to the self-employed and can negatively affect aid…substantially.</p>
<p>what type of deductions ?</p>
<p>I don’t know all of the kinds of deductions that CSS schools add or might add back in.</p>
<p>Last year, an ivy parent (Cornell or Columbia) contacted me, very upset, because their ED child’s FA got adjusted after she accepted.</p>
<p>The mom was a Realtor, and their income was readjusted by about $25k. I don’t remember all the things that were added back in, but some were…gas, cell phone, part of her car lease, some of her car insurance, some of the restaurant deductions. Obviously, there were more things added back in because the difference was about $25k, but I don’t remember what they were.</p>
<p>To start with, I’d suggest that you print out the FAFSA EFC formula itself, and work through it on paper. <a href=“http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf</a> That will allow you to see which factors most affect the FAFSA results, and it will help you get the documents ready that you will need for the other calculators. The formula changes a bit every year, but this will give you a better sense of how things stand.</p>
<p>^^^</p>
<p>Yes, but FAFSA won’t indicate how CSS Profile schools will handle a self-employed person’s deductions. FAFSA doesn’t deal with any of that. That’s why a FAFSA EFC can be VERY different from a CSS Profile school’s “family contribution” when someone owns a business or is self-employed.</p>
<p>
I’m not familiar with using NPCs since my son is a rising junior, but in looking at last year’s Profile, the question regarding “income earned from work” includes line 12 from the 1040 which is business income or loss from your Schedule C. So yes, put your net income there. I do not know what the question is regarding “earn from business”, but do not list the same income in two places.</p>
<p>The issue that colleges “add back in” some business deductions is very difficult to identify, especially as a broad category without a specific school in mind.</p>
<p>In our household, I have a regular salaried job and my husband is self-employed but his professional services business has no employees and is a standard C Corporation. For the past three years our son’s college has met need with his FA package as defined by the FAFSA EFC. So in our case no deductions were added back in to income even though the business owns one of our cars (and insures it), pays our entire telephone bill each month, buys office and cleaning supplies for the household, and we deduct the office space (which is a separate building on our property). The school requires a copy of our entire Schedule C as well as the rest of our joint tax return each year.</p>
<p>I understand that the rationale for this add-back is to level the playing field for families who are covering these deductable costs through regular income, which seems fair. Not every family gets the tax advantage of passing household costs through to a business entity. From threads on CC, it sounds like this is typical for most schools, but it has not been the way our school calculates FA. Best to assume the worst until you have actual schools to call and discuss this with.</p>
<p>^^I take it back. I just ran through the NPC for our school and the question about wages and salary specifically says to exclude business income and to include it in the question specifically asking for business income or losses. So line 12 from your 1040 should go there and not under salaries. Should have looked at this before answering above.</p>
<p>The “income earned from work” question is about how much income you paid social security taxes on. Since you do pay that on your self-employment income (through the self-employment tax) you would list your income on that line, in addition to on the line where it asks how much business/self-employment income you have. (If you had wages, you’d double-list them as well.) One line is really about income, and the other is an indirect way of figuring a deduction from income for the SS taxes you would have paid on your income. </p>
<p>The book “Paying for College Without Going Broke” by Kalman Chany is very helpful in understanding exactly what should get included on each line when you’re actually filling out the forms.</p>
<p>As far as business deductions getting added back in, my take is that this is usually done when things that look like they might be “normal household expenses” get counted as business expenses for tax purposes (such as business use of the home, phone, purchase of computer equipment, possibly travel, etc.) It’s really hard to get a school to even tell you what they added back, but if your computed contribution is far from what you expected based on your computation, you can at least ask. I imagine that in some cases you might be able to make a case to have it re-deducted if you can document that it’s really a 100% business expense (for example, if you have a cell phone for personal use plus another one exclusively for business use…) fwiw, my son is at Cornell and my DH is self-employed and we did <em>not</em> have a problem with them adding business expenses back into his income (at least not to a noticeable degree), but his business does not have a lot of expenses as a percent of income, and most would not fall into “suspicious-looking” (to the school) categories.</p>
<p>Good luck!</p>
<p>, but his business does not have a lot of expenses as a percent of income, and most would not fall into “suspicious-looking” (to the school) categories.</p>
<p>Yes, that may be the saving grace.</p>
<p>Some of the NPCs state something along the lines that their estimates aren’t reliable for those who are self-employed, have non-custodial parents, or other issues which make things less straight-forward. </p>
<p>In the case where the father contacted me, his Realtor wife had a good % of her income as deductions. The husband didn’t earn much, so their ED FA offer was based on a much lesser figure. Once they got the final offer, it was much different. They appealed and were told that about $25k of deductions were added back in. </p>
<p>A Realtor who doesn’t have a separate personal cell phone, and also uses her car for personal use, may not be allowed to deduct all of the related costs (lease/gas/insurance/repairs/etc). I know that they were upset because they felt that some very legit expenses were being added back in.</p>
<p>Yeah, I can easily imagine a realtor getting a raw deal on those kinds of expenses. I feel really bad for that family because I imagine that they got the “real” FA offer once it was too late for the student to even apply at most other schools – I hope something worked out for that student in the end.</p>
<p>Self-employed person here–not sure what all CSS profile colleges added back into income, but for starters, my entire IRA sep contribution for the year was added back as income. </p>
<p>I think they also viewed the value of my business assets as personal assets. My D ended up at a public institution, FAFSA-only, as in the end, it was her choice and more affordable to boot.</p>
<p>Just curious, Archiemom–how can the C corp pay for the household phones, household office supplies, cleaning things, etc? </p>
<p>My accountant said to keep things separate as much as possible, so I don’t so much as buy a roll of toilet paper for the house using office funds. But then my biz is not set up as a C corp.</p>
<p>Yes, the value of your business would be counted as an asset, and yes, all retirement contributions (self-employed or otherwise) are added back in to income.</p>