Aug
11
2011
A question regarding how parents’ tax/business records affect their children’s college financial aid?
My sister’s daughters get some kind of financial aid from their universities. My sister is considering starting a new business but she is concerned that the records of her owning a new business(with the Tax ID and income records) will make her daughters not qualified for their financial aids.
Pleas give suggestion of sources of facts that we can look into.
This conversation was published at Accounting Services of Charlotte, NC
Tagged affect, children's, college, Financial, parents', question, Records, regarding, tax/business, their
nitebearerAugust 11, 2011 at 6:42 pm
Most financial aid from colleges/univ are based on the parents income and ability to pay. Therefore a business income especially if it is a soleproprietor type business can affect the income reported as it is all hers (unless they accept net not gross from the business). Unfortunately if the business does well some will take that as the owner having access to money (even if not really). So she will have to isolate herself as just being a shareholder and make her salary small (limited or inc company).
Talk to someone at the univ, they may be able to give you an insight as to how they work it.
Found-1August 11, 2011 at 6:54 pm
I have helped people fill out fafsas who were considered self employed and/or own their own business. . . are two questions that this might effect on fafsa application. But first, ANY additional income or assets added to the family could possibly effect her financial aid eligibility. How much it effects it simply depends on the amount of money she earns over the course of the year. Also remember that anyone will qualify for student loans (regardless of income), so I’m assuming she is trying to preserve her Pell Grant eligibility. If the student ONLY qualifies for student loans currently, all the information below wouldn’t matter anyway.
There is a question on the fafsa about “What is the net worth of your business?” They key term here is “net” worth. . . If she owns an auto body shop for example, she would report the total of how much the business is worth – the building, tools, inventory, etc. If she owes as much on it as it is worth – like to a bank for example. . . then she would report the net worth to be zero (and this would not effect her fin aid). If she owns an auto body shop and everything is already paid for, she would report the total amount of everything (and reporting a business of something like $100,000 would definitely effect her fin aid).
If she “owns her own” catering or house cleaning company then this would prob not effect her financial aid, as she may have very little or nothing to report due to the nature of these businesses.
There is another question on the fafsa that asks about mothers income from working and also family adjusted gross income. . . Now. . . if she is starting her own business and has income earned from working the money would be included both of these fields. For example, I did this for a family who were truck drivers. You could tell by looking at their tax forms, they actually brought in a great deal of money over the year, however when you looked at their “Adjusted Gross Income” only income earned from working after expenses were counted on her fafsa – like $12,000. So he might have received $50,000 for the year driving a truck, but he was able to deduct expenses like gasoline, insurance, maintenance, or other expenses from that figure.
My advice: If she does start her own business, keep excellent records, hire a good accountant, and have a lot of expenses.
Hope this helps.