Family Income?

calmom
Sat, 24 Feb 2007 21:34:02 +0000

I don’t know what they use to assemble the stats, but the FAFSA income used to determine EFC is calculated by taking the AGI from the 1040 and then adding back writeoffs that show a shift of income (such as contributions to IRA or 401K); adding in untaxed income (example: amount receive in child support) and certain benefits you receive, like retirement distributions; and subtracting out certain income, such as income from work study and HOPE or lifetime learning credits.

The FAFSA also has a separate line that asks your total earnings from employment, including self-employment – that would be the bottom line (not the top one) on your schedule C. This figure is used so they can subtract out FICA or self-employment tax from income as well – that isn’t subtracted from the part labeled “income” but it is treated as an allowance, and when they subtract out all allowances they come up with an “available” income figure used to calculate what you should pay.

You writeoffs from your schedule C will reduce your income for FAFSA purposes, but most colleges will ask to see your tax returns, and the private colleges do go over the schedule C’s and add money back in. They have varying policies – many will add back in all or a portion of some of the fuzzier deductions, like depreciation, vehicle expenses, travel expenses. By “fuzzy” I mean the ones that don’t reflect hard expenditures, or that self-employed people use to write off the costs of expenses that are clearly discretionary or they would have anyway, such as a deduction for home office expenses.

In the past CSS Profile schools also asked all self-employed people to provide a “business supplement” that asked for, among other things, a detailed breakdown of any business expense over $1000. FAFSA also used to want a valuation of your business and considered it to be an asset – my son’s college insisting on valuing my business “asset” as being equivalent to my last year’s income, even though I am a free lancer who works from home. However, there was a change in FAFSA this year, and now if you have 100 employees or less, you no longer have to report a valuation of your business asset. If there ever was a handoff for rich people and a door opened to hiding money, this has got to be it — I certainly welcome protection for small business owners, but 100 employees? That’s not a “small” business! A number like 10 or 20 would have been more like it.

In any case, I have -0- employees so that’s less than 100 and I no longer have to fear a college inventing a business asset number, and my d’s college didn’t ask for the business supplement this year, so I guess they are following the new FAFSA rule with the Profile.

I am mentioning this because with two self-employed parents, predicting your college financial aid is going to be pretty tough. You can get a bottom line, best-case scenario – but you never know what colleges are going to do with the info you provide them. The lower your business overhead, the better off you are.

The best thing you can do for planning is to fill out a financial aid estimator at www.finaid.org or the collegeboard.com web site and print out a detailed breakdown of the calculation both under “federal” and “institutional” methodology. That way you will get a sense of where all the numbers come from.