Hello! I am working on the FAFSA for my oldest daughter who will be a freshman in 2024. Looking for input on what I need to report for business value.
Business 1: We are only 8% owner. Do i estimate the total value and enter 8% of that?
Business 2: We are 50% of an LLC that owns a commercial investment property. Do I take value of property less debt and then report 50% of that?
Business 3: My husband is a contractor. He is the only employee. It is a simple business. He runs the job, collects payment from client, pays his subcontractors and collects profit. No assets/debts. Not sure how to determine the value on this one. He is the business so it’s not necessarily something we could sell.
I am not an expert on these questions, unfortunately. However, I would say that you are correct for 1 & 2. For 3, it doesn’t sound like there is any value for the business. Again, though, these are guesses. You might want to call one of the schools to ask a financial aid officer if you are reporting values correctly.
Business 3 would be zero value. I’ve done enough divorce valuations to say that pretty firmly. There is no value since, as you said, it’s not like you can sell it. You are reporting the income from the business, so that is where the “value” lies, but obviously, the income shows up on your tax return.
If there’s a business bank account (which I assume there is if he’s generating invoices and paying subs) and business equipment, those are assets. It might not add up to a lot but the value isn’t zero.
I look at it this way: if I offered you a dollar for the bank account balance and all equipment that’s been purchased by the business, would I be getting a good deal?
With the old FAFSA rules on family-owned businesses #3 wouldn’t have been relevant, but I think those rules have changed.
Having said all that, this likely doesn’t matter much unless the asset value is significant.
She said there were no assets or debts, which would include a bank account. I then assumed there was not 20K worth of tools or inventory sitting around with no debt.
I was questioning whether it’s accurate to say there are no assets. (It might be, or it could be that there are assets they view as “theirs” but which are technically business assets).
ETA: even in the case of a pass through entity in which all business income has been reported on the FAFSA, bank account balances are still reportable assets for FA purposes (just as they would be if they were distributed and kept in a personal account).
That is true - a person gets a paycheck deposited in their bank account, and the balance in that account would be an asset when doing the FAFSA, even though the monies are also included as income. Another reason to pay all your bills before doing FAFSA!