<p>Geesh! Is there no end to the arrogance that exists with some posters here. I have never taken the full amount that has been shown on my K1 and it has actually averaged about half of that. The amount that has been left in the company has been used either as a cushion in anticipation of other expenses or for a variety of other reasons.
How could any tax professional come to a conclusion about a particular business’s circumstances without examining that business’s financial particulars directly? Where does the money come from to fund new computer equipment, new phone systems, improvements to your physical building, hiring additional employees etc. We plan for these things and fund them largely from profit.
Would you like to tell me more about my business?</p>
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<p>GreatKid - That you reinvest your profit in your business is a choice. You could also withdraw that profit and use it to pay for college, but you opt not to do so. That may be a very sound business decision, but, as other posters have pointed out, it’s not the college’s responsibility to provide financial support so that you have money free to pay for “new computer equipment” and “new phone systems.”</p>
<p>When all is said and done, you will own a share of a business that has a substantial value. That is your objective after all, isn’t it? That’s a laudable goal . . . it’s just not the college’s job to help you get there.</p>
<p>The reality is that spending $240,000 for a college education hurts. For most families, that expenditure has a significant and long term impact on the family’s net worth. The only families for whom that is not the case are those who are already so far down on the economic scale that there’s simply no net worth available to be impacted. (And, for what it’s worth, the only way those families make it through college is if their kids are strong enough students to gain admission to the handful of highly elite schools that meet full need. Otherwise, their students have even fewer options than yours.)</p>
<p>I guess after preparing thousands of tax returns I have a pretty good knowledge of small businesses, K-1s etc. Equipment, phone systems, hiring costs … those are all called expenses and they reduce the bottom line net income/K-1. I am not trying to be arrogant, I am just trying to give an objective view.</p>
<p>Greatkid, colleges assess businesses in different ways. We have seen some businesses that are not worth much or anything hit up hard on PROFILE. Part of it is that business deductions taken are added back it raising the income, and that is a big hit. That you’d never see the money or whatever rationale is something you have to then discuss with each financial aid director and if you fit a certain category that they have identified and decided to treat a certain consistent way, you can be out of luck. But then a like school could view things differently. </p>
<p>There was a post from a student who was accepted to Swarthmore who did not get the aid he needed to go there because of the way the school assessed his family’s business. An appeal did not do any good. And Swarthmore meets full need as they define it, and is one of the more generous schools. But for this student 's family and business situation it was a no go. He was all set to go to UW when another LAC came in with an aid package far more generous, a school like Swarthmore, that viewed the situation differently. So go figure. It’s impossible to determine how any given PROFILE school will assess your situation.</p>
<p>There was another student whose family got slammed in the process when their family business and income situation was showing a huge increase on paper that was not at all realized. Apparently they belong to some small business partnership, and when one partner leaves, his share is split up among the others. No money was exchanged but that occurance was assessed as a realized gain in value–and it brought the income way up. You can peruse the older posts;both of these things happened just this year, and read some of these stories.</p>
<p>So bottom line is that we can all argue about what should be counted and how but it doesn’t mean a thing. It’s how the financial aid offices of the colleges on your student’s list that make the determination and you have to convince them of how the numbers should be interpreted. Sometimes they will bite, and sometimes not. </p>
<p>I suggest doing a preread for ED at CMU. Even if it 's not on the list. I suggest this, because they’lll do on a full need met basis for ED consideration. That’s before you apply ED so , like now. It will give you some basis and some insight on how a college might view your situation. The NPCs are useless in your case, and this gives you some info. We can’t help, because, it simply is not our call and that ‘s what it comes down to; what the FIn aid offices’ calls are on your situation.</p>
<p>Thank you Cptofthehouse for the helpful information!
DM I understand and appreciate many of your points, your thought process regarding choice is simplistic and quite flawed.
KCTG you are wrong and I don’t care how many Tax returns you have done. You can not possibly come from a general place to assess the elements of my business that you know nothing about. It is the equivalent of a Doctor diagnosing a patient without physically seeing them. I am a professional and I would “never” suggest I could speak intelligently about someone’s circumstances without much more in-depth knowledge that what I have provided here.</p>
<p>This is not a medical diagnosis, it is really not even very hard. It is tax accounting 101. You may be a professional and may be an executive officer and may always be right… but on this, my friend, you are wrong.</p>
<p>How can you possibly come to conclusions about the financial necessities and goals of a business you know nothing about? Of course you can’t!
Threads like this typically turn in to everyone else leaving the discussion and becomes a match of ego’s between two people who could care less about the opinion of the other. To that degree I am sorry I perpetuated a conversation of this nature.</p>
<p>Greatkid, you may get as many and to you, as preposterous assumptions about your businees from the fin aid offices. I have seen things that make no sense in both directions, where it is ripe for loopholes on part of the family and where it is ridiculously unfair. </p>
<p>It’s going to be tougher as a business owner to get a good idea how schools are going to view your financial and what your contributions are going to be expected to be, as you cannot rely on the NPCs. If your student is looking for a certain categoy of schools and getting fin aid is needed to make it a go, a wide net needs to be cast. As always, find some schools you know will accept your student and that are affordable… THat is the crux of the college search. Once you have a school or two like that on your list, you can start playing the admissions/aid lottery.</p>
<p>I have an S-corp business, and I see it the same way KCTaxguy does. I make a choice to leave some assets in the business for future investment or cushion, but I understand why colleges see those as an asset that might also be taken out and spent on college. It is a choice. When I ran the NPCs, I put that amount into the NPC as if it were savings I had in my personal accounts. Got a pretty accurate read on the final FA packages that way.</p>
<p>I would regard the comments, theories, interpretations, opinions of those here as good practice for you to field for when you need to discuss your financials with your student’s choices’ fin aid directors.</p>
<p>How do you do on Fafsa EFC? What sort of school are you seeking, and located where? Some LACs in the PA, OH area might be worth while checking out as some are FAFSA only and give decent aid. Albright meets need as defined by FAFSA with COA defined as Tuiton, fees, room and board. About as good as it gets for guaranteeing meeting need using FAFSA only to detrmine it. Denison is another school I’d pick.</p>
<p>I am on KCTaxguy’s side. </p>
<p>Also, OP must have a substantial AAA account if he/she only takes distributions of about half the ordinary income.</p>
<p>* I make a choice to leave some assets in the business for future investment or cushion, but I understand why colleges see those as an asset that might also be taken out and spent on college*</p>
<p>Absolutely. Otherwise business owners would always leave a ton so that they could get more aid…then withdraw the money for luxury use after junior year.</p>
<p>I have no desire to alienate people here or argue. The initial lack of civility of some here took me off guard, with derogatory comments referencing “begging with hat in hand” “who am I trying to kid” etc. Who communicates in that manner with people they have never met? The presumption that you can assess a business’s financial or accounting needs without seeing their records or without having an awareness of so many elements of that business operation and what their obligations and goals are is ludicrous. If it is necessary for me to provide scenario’s to drive this point home, I can easily provide many.
For clarification for Madison, I never stated that I only take distributions of about half of ordinary income. I said I take on average half of K1 income annually, I receive a salary from my business, plus commissions, plus what ever is appropriate to receive from my portion of K1 income.
I understand the “choice” element of the conversation although I would suggest it is considerably more complicated than that and could provide many examples to illustrate that. I also understand the possibility of abuse as it relates to manipulation of these things. I am not na</p>
<p>If my analysis was flawed I would get jumped on in here. Another simple way to look at this would be to assume the company has a line of credit to handle cash flow issues. This is what many companies do and would facilitate all the net income being distributable. The only way for a FA person to compare apples to apples is to assume your business did this.</p>
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<p>On one of the first posts I made on this site, I asked for input on financial aid application after a recent marital separation (we are now divorced). Within minutes I was accused of trying to scam colleges out of financial aid by people who knew nothing about me, my situation, or my kids. I did finally get some useful information but had to endure a certain amount of abuse to obtain it. Welcome to college confidential…</p>
<p>“Another simple way to look at this would be to assume the company has a line of credit to handle cash flow issues. This is what many companies do and would facilitate all the net income being distributable.”</p>
<p>So you would suggest you incur business debt (a line of credit) so that you can have access to your profits personally without knowing anything about a business? Are they hiring new people, are they purchasing equipment, are they expanding their building, are they opening a new location etc. etc. etc.? Wouldn’t you need to know their available cash on hand, the time frames in which expenditures may result in increased revenues/income, the owners risk tolerance, possible seasonal variations in their business, the business lending environment, interest rates, and on and on and on.
The answer to this is yes of course you would need to know these things.</p>
<p>Line 1 of the K-1 is called Ordinary Income. So you are not referring to a distribution of this when you say ‘I take on average half of K1 income annually’?</p>
<p>You do not have substantial AAA?</p>
<p>Merit aid will be very subjective, however if as you say you won’t qualify for any need based aid, it can’t hurt to try, as there will not be any need based aid that will be reduced when awarded merit.</p>
<p>We did not find the NPCs to be very informative on merit aid last year when we used them for D2. I think only one college showed merit, but she ended up getting it at 5 of the 8 colleges she applied to. And the one that showed it had less than she actually ended up receiving.</p>