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Self-employed - question about FAFSA!!!

lalamommalalamomma Registered User Posts: 51 Junior Member
edited February 2006 in Financial Aid & Scholarships
How does the FAFSA ask about self-employment vs. employee? I am self-employed (Own my business) but file personal tax returns only on the income I pay myself. I have never filed taxes on my business account. I pay expenses out of that account. Nothing is really left over, but I will pay rent or buy supplies, etc. I called a bookkeeper and he said it would take 5 months to get the business part straightenend out. What can I do? Should I go ahead and report just the income from my payroll account? I don't want to blow it, be dishonest, or go to jail. On the other hand, my payroll income was less than 50K, the business income was used for expenses with nothing left over, and I have NO assets. Please, please, someone help.
Post edited by lalamomma on

Replies to: Self-employed - question about FAFSA!!!

  • dt123dt123 Registered User Posts: 1,178 Senior Member
    It sounds like you should have been doing a Schedule C for your income tax return to account for gross business receipts and business expenses. If I understand it, you have just been reporting the net profit as "salary" and filing without a Schedule C. The end result as far as income tax goes would have been the same as what you have been doing, so really no harm no foul so far as the IRS is concerned.

    But now the FAFSA is going to bring to light that you are doing the income tax forms wrong, because what you will submit will not make any sense to the financial aid officers. So I think you have to get a better bookkeeper or CPA to do a Schedule C and a 1040 for you this year, and pronto, so you have them when the financial aid offices ask for them.
  • curmudgeoncurmudgeon Registered User Posts: 12,128 Senior Member
    OP wrote:
    I am self-employed (Own my business) but file personal tax returns only on the income I pay myself. I have never filed taxes on my business account. I pay expenses out of that account. Nothing is really left over, but I will pay rent or buy supplies, etc.
    I'm not picking at you. Heaven knows mine is probably as screwed up as yours but help us out understanding. Are you saying you have never filed a schedule C? That you wrote yourself "paychecks" from a business account when the business wasn't filing any sort of return? How did you handle SE tax or social security? Answer these and maybe I can get a handle on where you are.
  • catherizedcatherized Registered User Posts: 1 New Member
    I have a related question. Self-employed, sole prop, have an EIN, file schedule c.

    My question: when asked for the taxes we paid, do we enter the total amount of taxes paid, including the self-empoyment taxes? The form says to use line 57, but that assumes the several thousand i pay in se tax is "available" to pay for college when it's not.
  • coyotewebcoyoteweb Registered User Posts: 18 New Member
    I had the exact question as you, catherized, so I called FAFSA. The person told me to report only the tax on line 57. (Doesn't make sense to me because it doesn't ask for my self-employment tax anywhere else. )
  • somemomsomemom Registered User Posts: 10,441 Senior Member
    you don't get to report the self-employement tax at all :(
  • sblake7sblake7 Registered User Posts: 1,691 Senior Member
    Self employment tax is considered an expense and is deducted from income automatically by the formula during the calculation of parent's available income. Total income is reduced by income taxes, social security taxes, state taxes, an employment allowance, and an income protection allowance to get the Total Available Income.

    So if you add your SS taxes to the federal income tax, instead of just using the number on line 57, your SS taxes will end up being counted twice, and they will probably catch it and hold up your application.

    lalamoma: You should ultimately get your business finances straightened out. I'd start now for next year's taxes, and plan on filing Schedule C. Somebody is supposed to have been paying Social Security taxes on your 50K annual income, to the tune of about $7,500 per year. Maybe you can just fix it going forward, effectively starting your business this year.

    If you've already filed a 1040 (only) for '05, you might consider just following the FAFSA instructions. Fill out the FAFSA based on the numbers you put on your 1040, line by line. That way your FAFSA is correct, based on your tax returns, anyway.
This discussion has been closed.