Completely new to College & Fasta's, etc.... - Page 2

momfromme · 01-30-2007, 11:41 AM

Federal tax return $ is not taxable income.

standrews · 01-30-2007, 11:46 AM

"Yes, income tax refunds are income in the subsequent year."

I don't think that's quite right. If you itemize deductions, a state income tax refund for 2005 is reported as income on the 2006 federal income tax form, but federal tax refunds are not income. A federal refund has already been taxed. The state refund was not taxed. That's the difference.

I'm not sure what happens with a state income tax refund if do not itemize deductions.

OverRunWithSons · 01-30-2007, 11:58 AM

Ok, thank you last 2 posters, that is what I thought. I have been reading the advantages & disadvantages of receiving a Large Federal refund & Nowhere have I seen that these (already taxed) refunds are supposed to be taxed again in the next filing year. If that is the case, the IRS would be all over me by now and many of my friends. The only deductions we do is the Children (I have 5, soon to be 6)--and take the Additional Child tax credit as we are eligable (this is not Unearned income, but something different). We have only done the long form 1 year when we sold a house. Otherwise it is always 1040A for us. We probably should put the correct exemptions on our W-4 to reduce this refund, I do agree! Are these refunds asked about on the FASTA? If so, I need to really get some things changed!

Chedva · 01-30-2007, 12:51 PM

I stand corrected, and apologize.

You did say that you use the 1040A. If you income is less that $50,000, you may find yourself eligible for the simplified needs test, which means you don't have to deal with assets. If you do qualify, I wouldn't count the tax refund, since it's an asset, like savings, and not income.

If you don't qualify, though, I think (and could be wrong again) that the refund is considered in your FAFSA, because once you receive it, it is "available" to be spent on college. You may decide to pay down your mortgage, but FAFSA doesn't care about that.

Chedva · 01-30-2007, 12:54 PM

Oh, and congrats on the upcoming 6th!

swimcatsmom · 01-30-2007, 02:06 PM

I seem to have caused some confusion with my earlier post.
a. I was talking about refunds of state taxes not federal taxes.
b. State tax refunds may have to be declared as income in the subsequent year if you itemised deductions on your federal tax.
From http://www.irs.gov/taxtopics/tc405.html

Quote:

If you took an itemized deduction for state or local taxes on your Federal income tax return, you may have to include all or part of the refund in your income on your tax return. You should receive Form 1099-G (PDF), Certain Government Payments, advising you of the refund amount. You can usually use the worksheet in the Form 1040 Instructions to determine the taxable portion of your refund. However, if any of the exceptions listed in the instructions applies to you, refer to Publication 525, Taxable and Nontaxable Income. It contains further information on how to compute the taxable portion of the refund, and special worksheets.
If you did not itemize deductions on your Federal tax return for the year to which the refund applies, do not report any of the refund as income

.
c. If such a refund is considered taxable it has to be declared as income on your federal tax refund and the only form you can do it on is the 1040. You cannot file 1040a or 1040 ez which means you are ineligible for the simplified needs test. Does not sound like it applies to you if you filed 1040a.
Sorry if I caused confusion

swimcatsmom · 01-30-2007, 02:38 PM

^^^^ just wanted to point out I am not any sort of tax expert - my original post was just pointing out the odd little things that can have an impact on your EFC - this particular tax situation affected us and made us ineligible for simplified needs which is why I mentioned it.

pjp1116 · 01-30-2007, 02:52 PM

Posters here are correct. Although I am no tax expert. The Federal Tax refund is not taxable in the subsequent year. Your State Income Tax refund is.

But, dont say that you aren't too bright. Paying off the house early can be a great thing. Having zero debt absolutely is. If your goal is to pay off the house with the $6K when you get your Tax refund....You get even more of a bang for your buck by paying the extra on the principle on a monthly basis.

Google mortgage amortization. You'll see what I mean. I have no intention really to give you financial advice, but I guess you would be able to find an investment, or some way of using that $500 a month without letting the government use it for you. Good luck.

OverRunWithSons · 01-30-2007, 04:23 PM

Our house has been paid off for a year now accually, we plan to take this Refund & buy a newer Suburban, ours is almost 20 yrs old & literally falling apart. Now I am confused again.... so we are supposed to count our State tax Refund in the next years as income?? We have always gotten back about $1,000 each year and never did this. We get "Tax Forgiveness" (I believe that is what it is called) or something due to dependants & income. You must be talking about something else, mentioning those deductions , we don't deduct anything but our kids & 401K on any taxes, Federal or state (I don't think you are allowed to deduct that on there?). I say we are not bright because we have been socking $3,000 to $4,000 a year into an 401K plan at work-picking certain so called "safe" investments (we only have so many to choose from) and over apprx 7 years, it is only approx $28,000 right now. It seems to me, when you read about investments, they make it sound like you will be making a mint, how it really adds up, where as it seems to us, we might have been better off doing CD's. Investing in something we do not understand does not seem to work for us--at all. We continue the 401K just because we can deduct that amount from being taxed every year, not because it is doing well. I guess I need to take a course on how to interpret & change mutual funds or whatever within a 401K. I've tried to read & understand, I just do not get it.

OverRunWithSons · 01-30-2007, 04:34 PM

Ok I see it says this.... "State tax refunds MAY have to be declared as income in the subsequent year IF you itemized deductions on your federal tax"---which we don't/never have, so for us, it is not counted as income and needing to be taxed again. How you people undertstand all this, I will never know. What a MAZE!!! Itemizing seems to open up a whole can of worms, I am not interested in doing that no how, no way. I am perfectly happy with getting what we get back each year , even if I do let the Government use it for months. Having this many kids is what saves us at Tax time, I would not try to squeeze anymore. I guess if I made ALOT of money & was paying out the butt, I would feel different and do all of those things though. Even if I had to pay someone to figure it all out. As for us, we muddle along doing all this complicated stuff ourselves-- cause we are too cheap to pay someone to do it for us. Another reason I am starting these "Paying for College" questions EARLY because I do not want to have to hire an Accountant for Advice on filling out these forms, doing it on time, etc. I really really really appreciate all of your help !!

OverRunWithSons · 01-30-2007, 04:40 PM

More questions (so sorry!).... This thing called a "Simplified Needs test" - how is one eligable for this, is this learned once the Fasta is being filled out, can this be determined BEFORE the Fasta is filled out, I googled "Simplified Needs test FAsta" but found nothing. Why is this different /set apart from the normal Fasta?

swimcatsmom · 01-30-2007, 04:50 PM

http://studentaid.ed.gov/students/at...rmulaGuide.pdf

pages 3& 4

If you think you are confused now try reading through all of that!

Also run your numbers through one of the EFC calculators (finaid.com has a good one) and it will give you an idea.

http://www.finaid.com/calculators/scripts/estimate.cgi

FresnoMom · 01-30-2007, 09:42 PM

OverRunwithSons

It is FAFSA (not Fasta)... try googling again; you should come up with lots of info!

There were changes a few months ago....for example I think if your children receive free/reduced lunch or other federal aid, and your income is under $50K, that also qualifies you under the Simplified Needs Test.

OverRunWithSons · 01-31-2007, 09:25 AM

Accually my 4 kids in school DO qualify for the Reduced Lunch program, and I get WIC for this pregnancy/baby. Nothing else though. Plus we use the
1040A every year, I seen that was something you had to be eligeble for. I am learning alot here, writing things down in my book "Straight talk on paying for College", it is out of date though (2003). I told each of my kids I would pay $10,000 for their education... now when it comes time (after financial aid, grants, etc) for those loans, it is better to get Loans in parents name, or kids name, or can you do both? I planned on doing both. Does this complicate things ????

swimcatsmom · 01-31-2007, 11:21 AM

OverRunwithsons - one of the best sites for starting to look for information is finaid.com . They have a calculator that lets you enter your number to get an idea of what your EFC would be. They also have information about the various different types of grants (Pell, Seog etc) and loans (Stafford, Perkins, plus etc). Some loans are for students & some for parents. Some are based on financial need and some are not. Some you have to start repaying immediately and some you do not have to start repaying until after graduation. Here is the link to the finaid page about loans:
http://www.finaid.com/loans/
Also check out your State education web site. Our State has some additional grant programs for students that qualify for federal aid & yours may also.Finaid has a page with links to State web sites.
http://www.finaid.com/otheraid/state.phtml