Small business expenses, losses, etc.

Paying for College
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<p>I am wondering about this. My son has applied to a very selective school that "meets full need" as determined by them (via the Profile and their own methodology). I, too, am self-employed. My GROSS revenue is about $130,000, but my deductions are "real" - things I actually have to pay for to run the business. Office rent, supplies, part-time help, etc. Things that are truly out-of-pocket. The only things that seem to me appropriate to add back are things like mileage, depreciation, etc. - that are not actually paid 'out of pocket', but are just paper expenses.</p>

<p>Someone on a different thread implied that all small business deductions are "a choice." Well, not so much. If you have an oil change business, you HAVE to buy oil, parts, machines, etc. If you have a car wash, you have to buy soap, and if it takes 2 people to run it, you HAVE to pay someone else to help you out. A business has to have a place to meet customers, wash cars, or whatever, so most businesses will have to pay rent of some kind, or expenses of property ownership, for the store or office. I simply would not take in $130,000 in revenue if I did not spend what I do for my office rent, staff, copier rental, necessary books, paper, recording fees, credit card fees for accepting cards, etc. Sure, some expenses are discretionary - meals with clients (we only get to deduct 50% of those anyway, but I expect them to be added back), trips to conferences (I don't go on those), a second office (I don't claim one). But I'm hoping they won't be adding back things I actually spend, and that are necessary to earn the 'gross revenue' I take in.</p>

<p>My AGI is about $52,000 and we qualify for a small Pell (FAFSA efc = $5,038). We have basically no assets, home is about break-even, no substantial equity (we actually only own a 1/2 interest in the house, which has a big mortgage - I put down the market value of our 1/2 interest and 1/2 of the mortgage, which actually puts us underwater; we are technically/legally responsible for the whole mortgage, but we only pay 1/2, so that's what I put down). No substantial savings or even retirement accounts. We live in a very expensive place (some schools take that into account, I have heard).</p>

<p>So I am wondering what business expenses they will likely "add back" for the purpose of determining our true need. I figure maybe a couple hundred in mileage expenses (I only take off for business-related trips to/from the office, NOT for my daily home-office commute), not sure what else. It sure wouldn't be fair if they add back things I actually have to pay, like phone and copier charges, insurance, rent, supplies, etc. Anyone have any experience with this, maybe having appealed a fin aid decision and discussed specific add-backs, etc.?</p>

<p>Anyone have a similar situation? Do you know what they are likely to add back? How about self-employed health insurance? That's pretty big, and I didn't include it in my "medical" costs since it is already factored into the AGI.</p>

<p>One more question. My husband also has his own business, which used to be a little profitable, until we moved. For the past few years (2009-2012) he had losses, but last year made more than he spent. Because of the prior years' losses, however, his 'net income' on his Schedule C was reduced to zero by carrying forward some of the loss that had been disallowed last year. I know they add back losses that go into the figure (forget exactly which line it is, line 12? maybe) on the front of the 1040 (like last year, my net from Sch. C was, say, $60K, he had a $2K loss, so the line 12 amount was $58K - I understand they would add that $2K back). But what about a loss that reduces the Schedule C net amount from, say, $2K to $0? So the amount carried forward onto line 12, from his Sch. C, is 0. Would they go into the Sch. C to determine whether there was an old loss contributing to that 0, and add it back, or not?</p>

<p>OK, these are tough questions, I know, but I am just wondering whether our "true need" is likely to be considered a LOT higher than our FAFSA efc, or maybe only a little higher. Anyone know, or have a similar situation? </p>

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<p>Those are tough questions, and the answer is going to vary by school. If you look at some threads in the Financial Aid Board, you will see this comes up often. I just posted something to a student whose financial aid package from a school that guarantees full need through CSS PROFILE has come up with family contribution far higher than the FAFSA EFC. His father is self employed. I referred to an older post from a student who could come to no resolution from Swarthmore, which is one of the more generous schools in terms of aid package, because after all appeals were exhausted, the college refused to budge in terms of defining their need. This student then decided that he would go to his state university, only to find another selective LAC that did look at need differently and did give him a package that made it possible. </p>

<p>As many of us have discovered, even schools like the group of schools that make a conscious attempt to use the same methodology for aid, can come up with drastically different aid packages. So all of your questions are those that the school’s precedents will determine with final judgement made by the financial aid officer. </p>

<p>I have a friend whose son went to Harvard, who didn’t get a dime of financial aid even though family income was under $60K because of the way depreciations, deductions were added back to income, and also because assets of the business were included, and the business was also assigned a value as an asset.</p>

<p>I 'm not about to argue whether it’s fair or makes sense in the way parental ownership of a business is evaluated. It’s simply the way each school views these things. Many of the schools consider things that are used for business that many of us who work have to buy personally and don’t get to deduct should be added back. I have copiers, computers, faxes, two land lines, only because of the line of my husbands work, but i can’t deduct any of the those things and the company he works for does not provide them, but without them, he can’t do his job effectively. We have friends who drive company cars and so they do not have to personally buy a second vehicle, but many who don’t own a business HAVE to have a car to do their jobs and they don’t get the deduction. So there is a lot of room to interpret. What each school does, is make their own policies and if your situation fits into one of the categories they have already established rules on how to handle, then, that’s that. If your situation is considered different enough, you can argue your case and there is more of a possibility that the school might make a professional judgement in your favor. </p>

<p>I don’t know any school that takes COL, like living in an expensive place into account. There are people of all economic brackets everywhere. That is a fallacy in the whole fin aid thing. </p>

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<p>Thanks for your insignts. I think it was in the book “Paying for College Without Going Broke” that I read that some schools consider particularly high COL areas. Many financial “evaluations” (outside of financial aid) do consider it if you live someplace where a home CANNOT be purchased - anywhere in the state - for under $300,000, and milk is - everywhere and for everyone - at LEAST $5.00 per gallon. For example, the amount of home equity you are allowed to have and still qualify for Medicaid (for nursing home care); the amount of income you can have and qualify for welfare, food stamps, etc. </p>

<p>EVERYTHING costs more for everyone here, because it has to be shipped in over the ocean. I’m not looking for sympathy (ha ha - living in Hawaii, we get negative sympathy, I get that), I just wondered if what I read was wrong about some “Institutional Methodology” schools considering COL.</p>

<p>I guess we’ll just have to wait and see what the schools offer. DS has applied to two Profile schools, so it will be interesting to see how different their calculations of our “need” are.</p>

<p>And BTW, I don’t deduct anything that I would have to have anyway, even if I didn’t have a business. I don’t deduct my car (only a few hundred miles/year that are for purely business driving), my cell phone (no home landline), my home computer, etc. Maybe I’m just too honest.</p>

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<p>Why do people describe themselves as * too * honest?</p>

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<p>I’ve never heard of a school that takes COL into account for financial aid purposes because someone lives in an expensive area. Not saying that none do, just not have heard of any that have, and have instead heard many complaints, some bitter that the schools do not take it into account. But with their own money, schools can take anything they want into account in any way they please, just about. And some schools take into account holistic factors when giving out financial aid, even those that meet full need. Some kids will get better packages in that more grant money, less in loans and work study will be awarded. </p>

<p>It’s your personal business if you don’t want to take certain tax deductions. Some don’t want to take the trouble to keep that kind of record, for some it just makes it easier to do the return, for some it’s a wash anyways, but whatever the reason, you don’t get any extra consideration for doing or saying that. Doesn’t matter. The way it works with financial aid is that any income taxes you pay are subtracted from income used for financial aid formulas. Those taxes are one thing that are deducted, so some people find themselves in the position of weighing the impact of the deduction with the loss of fin aid. </p>

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<p>Ive seen the chart somewhere.
You might get $ 300 more in aid than someone at the same income level would get in a flyover state.</p>