<p>As part of a corporate reorg, I was bridged to retirement (late Dec 2006) through an unpaid leave of absence. While I have been unemployed, I have tried to get a consulting business up and running, and have sold some investments to cover family expenses. Our income in 2006 will be <$50K, which would appear to allow use of the Simple Needs test. Obviously, we’d be better off if the Simple Needs test applies because then other assets will not be in the equation (e.g., investments intended to cover retirement).</p>
<p>The Simple Needs test, however, doesn’t apply if one is required to file Form 1040. FinAid.org says one has to file Form 1040 if amounts other than 0 appear in particular lines of Form 1040 such as line 12 (business income) or 13 (capital gain/loss).</p>
<p>My question: If one has (i) a net loss in a start-up business activity which could be posted in line 12, and (ii) a net capital loss due to having to sell investments in order to cover living expenses which could be posted in line 13, is one required to put the negative numbers in such lines of Form 1040 (and thereby be disqualified from being eligible for the Simple Needs test) or can one opt to forego claiming the benefit of the negative numbers by not putting them in such lines (and thereby be eligible for the Simple Needs test)?</p>
<p>Are your “investments intended to cover retirement” in IRAs or 401ks? If so you do not have to report them on the FAFSA. Don’t know about the other stuff I’m afraid. Though I don’t think any tax laws will make you claim losses if you don’t want to. However if you are looking at schools that base financial aid on things other than FAFSA they may other assets that FAFSA does not (house equity etc).</p>
<p>Bumppo, you need to talk to a tax advisor. If you have income anywhere reported on a 1099, you will get in a big mess with IRS if you don’t report it – for example, lets say that you have business income of $30,000 but your business expenses are $40,000. You have a net loss of $10,000. But IRS doesn’t see the figures that establish the loss – they only see these 1099’s reporting interest. So eventually they send you a notice that you owe money on the income you didn’t report. </p>
<p>I think the better course of action is to claim the losses and then write to the schools to explain the situation: you are unemployed, haven’t been able to find another job, and the consulting thing isn’t going too well financially.</p>
<p>You must use a long form if, in part, you had net earnings from self employment of at least $400. In addition, if you are self employed, your gross income includes the amount on line 7 of schedule C. </p>
<p>As a follow up to Calmoms post, even if you dont receive 1099s, your gross income is initially reported on line 7 of schedule C. You will have a net loss because of what you write off as reported on lines 8-27 of schedule C. You have to use a long form if you had net earnings of at least $400. How are you going to show a net earnings of under $400 (or a loss in your case) unless you file a long form and attach your schedule C write offs? </p>
<p>In answer to your question (i) and (ii), are you required to ? People report/do not report all sorts of things on tax forms. Statistically, they are rarely audited. But if youre lucky enough to be audited, how are you going to explain away your actions? It appears from the language in your post (corporate reorganization, bridged to retirement, starting a consulting business, selling investments to cover living expenses, etc) that you are not some country bumpkin, but are knowledgeable in the area of business/financial matters. Because of your apparent business/financial savvy, I dont think relying on the grayness in the tax code is going to help and claiming that you did it to misrepresent your financial situation to enhance your kids aid package could be very bad. </p>
<p>I think Calmoms advice is right on point. I am not an accountant/tax advisor, but you should talk to a professional to see if there is a way around the issue of filing a long form, but as Calmom indicates, youre probably better off being upfront about your situation, but be prepared to talk to a schools aid office. Aid officers do have discretion. Good luck.</p>
<p>Yes I agree with Calmom and Jugulator. The comment I made about the IRS not requiring you to report losses was directed to things such as losses on selling stocks etc where you do not gain any tax advantage by not reporting them. Not towards net losses in a business where there is income that must be reported even if it is offset by costs that cause it to be a net loss. We have been hit by one of the funny quirks in the ‘simplified needs’ part of the FAFSA also. Our income etc qualifies us but we had a refund of overpaid State taxes last year which means we have to do the long form 1040 this year so are ineligible for the simplified needs test. Makes no difference to our actual income or taxes paid - but increases our EFC. Rather an expensive mistake on our part. Good luck.</p>
<p>So does that mean you can only file 1040 if you are claiming HOPE credit --therefore not eligible for Simplified Needs ? There is only earned income credit form /additional child credit form with the taxes .</p>
<p>on page 31 question 34 it states that if you are only filing a 1040 to claim the hope income tax credit and are otherwise eligible to file a 1040a or 1040ez you can answer ‘yes’ to the question (are you eligible to file 1040a/1040ez)</p>