As I understand, the FASFA looks at the tax returns from 2 years ago.
This year, I own a very tiny small business.
I am expected to generate about $30,000 in sales, BUT, about $18-22,000 will be in expenses, such as cost, fees, etc.
I know AGI is adjusted gross income, and if you work at say walmart, it’s the amount you took in.
But with a small business, gross is usually income BEFORE expenses. Net is AFTER.
However how does that work with FASFA? While my gross could be $30k, what I pocketed is not even half that.
Also, as an independent student, how much can one make before being expected to chip in? As in EFC=0
I am trying to keep it so I don’t make enough where I have to pay, which sounds stupid, but if I make enough where I have to pay $2,000 for college, then it’s not really worth making that extra amount.
My business is setup where I can make more or less money, but I don’t really wish to make more.
I don’t get it. In my opinion, making more money is always better. There is never a point at which making any extra dollar will mean that 100% of that dollar is deducted from need-based aid. Not even close. If you could make $2,000 extra, maybe your financial aid would decrease by $500, but you would have $1,500 more in your pocket after paying the additional $500 in school costs. Why would you not want to do that?
Also, AGI is not just “the amount you took in.” It’s taxable income (earned and unearned) reduced by any above the line deductions (see lines 23 through 35 of a 1040 tax form).
If one paid $0 for college, then would this be 0? It makes no mention of this.
To make it even more complicated, the IRS doesn’t define your loan as taxable income, loans are not taxed income.
1040 asks for Schedule C, and C is profit or loss from business, which allows you to take your biz expenses off, BEFORE it goes into the line for AGI.
So I guess that answers my first question.
But getting back to form 8917…Pell grants and loans don’t go on 1040, because the IRS does not count that as taxable income, unless you buy something non-educated related.
The school sends a form 1098-T.
But again…unless you paid out of pocket, then would this effectively cancel itself out?
Are you trying to keep your income low enough to qualify for a full Pell? Are you intending to study somewhere where your full costs would be covered by that Pell?
Loans never show on the 1040. Grants and scholarships do if they exceed the qualified education expenses (tuition, books, some fees and other expenses) . You can say that the grants and scholarships paid for your tuition and books. Then, for instance, you can say the loans paid for the room and board.
The tuition and fees above the line deduction, using form 8917, is potentially available for those who at least partially pay these expenses out of pocket (with personal funds). You cannot claim a tuition and fees deduction based on eligible expenses paid with grants and scholarships, unless they are taxable. You can claim a tuition and fees deduction based on eligible expenses paid with loans.
You won’t have to worry about the taxability of grants and scholarships, and education credits you might be able to claim on your tax return, until after you start attending college.
For now on your tax return it matters what your gross receipts from your business are, and what business expenses you had, which will determine your net income from business, and your AGI.
FAFSA asks for AGI, and an independent student gets about $10,000 in income protection amount I believe. Also there are deductions from income for federal, state and social security taxes.
A max Pell grant for $0 EFC is about $5,900. What school are you planning to go to where that is enough to pay for all costs? Does your state offer college grants too? And student loans are not free money, they have to be paid back.