<p>My H is part owner of a small manufacturing business (75 employees). The business did well last year, no not complaining, but our "total income" per K-1/1065 is about twice what he actually brings home! Additional business profits are used to pay down debt and as reinvestment in the co. He has owned this business for 6 years and we have never dipped into these funds because there are good years and bad years. Also these funds are under the control of all 3 owners, not just my husband. Are we just SOL regarding reporting his income on FA forms? I was going to submit a letter with forms explaining our situation. Anyone have experience with such a situation?</p>
<p>YUP. It’s bad news. I’m in this place too. I have a business that is finally making money. Dirt poor forever, lived on credit cards while I built the business, etc. So, no savings, big debt, etc.</p>
<p>BUT…and I assume you have an S corp (?)…each owner has to report THEIR share of the profits and pay income tax on that amount. But…many of us don’t GET that amount. For me, for example, I have to leave it in the company until the next year so I can use it to PAY those income taxes. What’s left is needed for a million things. My income looks DOUBLE what it actually is, and it stinks! I’ll get virtually no aid, yet I’m not much over the real salary income where a kid would go to Harvard for FREE/with no loans! </p>
<p>BUT…it is income. It CAN be accessed if you wanted to. So…you have to report it, pay taxes, and it’s in your AGI as income because it’s there to take out as a shareholder distribution if you WANTED to. Even if it’s earmarked for business expenses. </p>
<p>FYI, you will only be reporting your “share” (you mentioned 3 owners). I’m unlucky enough that it ALL goes on my 1040!</p>
<p>I feel your pain. I was flabbergasted when I realized this would happen. There are SO many things that non-business owners don’t “get”, about WHY it’s barely worth it these days (let’s not EVEN get into the cost of self paid health insurance, double taxation for self employed, etc etc).</p>
<p>I don’t think an “explanation” is necessary. I tried to write one out, then realized how whiny it sounded, and deleted it. They SEE how much income comes from your business, it’s broken down. And I don’t think they care at all that you don’t actually HAVE that money. Because…you reported it as profit, above and beyond expenses for that year, so it IS accessible. FWIW.</p>
<p>What would you explain? It does stink but I understand that the way it’s viewed is that it’s an investment that “can” be tapped, in your case 1/3 of it. Same thing happens to us with rentals, the assumption is we can use them as loan collateral, sell them, whatever even though in the environment in we probably can’t give them away let alone get banks to agree to more debt to asset ratio…just make sure your kiddo has an affordable school on the list is the only advice we came up with several years when that realization hit us with S1. Perhaps you can come up with a plausible story, and believe me if anyone comes along with a story that works, I’m all ears.</p>
<p>Yup, that’s what we had to do…find a more affordable college. Though it LOOKS like we could afford any college, and will get little or no aid - there is NO WAY we could actually afford it. I won’t give dollar amounts of course, but…my take home salary is about the same as the the cost of a private college, yet my “numbers” say I can pay full fare. OP: You are NOT alone…lots and lots of people are just discovering that “getting admitted” to the college of choice is usually the easier step. It’s SO disheartening to have to tell our kids we can’t afford it, but…???</p>
<p>I wouldn’t mind if H’s portion of profits were considered an “investment” as $ is staying with the company, but won’t they just look at it as income–not investment–when considering EFC? Oh well, I know in the big picture that having a healthy business is nothing to lament. . .</p>
<p>Yup, unfortunately it’s just plain old income because it goes right into the AGI on your 1040. It’s hard, to be sure. It’s like someone handed you some money but they’re just holding on to the other end of the bills…but you’re still expected to pay it out for college…but you don’t HAVE it. It’s definitely one of the worse parts of having a business.</p>