S corporations and financial aid: Please help!

[MotherLove]

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Business or rental property owners are particularly vulnerable in the IM calculations. If your business is a sole proprietorship, partnership, or C or S corporation, your tax returns will undergo special scrutiny. Unfortunately, many colleges assume that if you own a business, you are wealthy, regardless of what is reported on your tax return. The principals of an S Corp suffer doubly, because the Adjusted Gross Income on the personal tax return reflects on line 12 a sum of money that is profit from the corporation on which tax needs to be paid, but which is not necessarily received. Thus, it is not available for personal use (such as college tuition). This is a good example of the relationship of the “nonprofit” ivory tower looking with suspicion upon “for profit” private enterprise. </p>

<p>You may do all the right things from an IRS and business standpoint, but it may not help you when the IM expected family contribution (EFC) is calculated. Your income can be increased by the amount of depreciation reported. Also business, rental, and capital losses will be nullified. Money you are holding in a business account to run your business responsibly (buy inventory, make payroll) will be viewed as a slush fund by colleges, from which you can write tuition checks. All of this can drive your IM EFC to unreasonable heights. To avoid going out of business, you may be forced to extend your debt enormously, or find a college that is fairer — one that will reward your child’s achievement and not penalize yours.

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<p>I found the above 2 paragraphs on another Web site. Is there anybody on this forum who has insight into how financial aid offices look at S corporations and S corporation debt? We are in shock as a result of the unexpectedly low offers made to us thus far by some private colleges. Evidently S corp debt is not considered when computing fin aid. Urgently need and would greatly appreciate help on this matter!!</p>

[bummer163146]

<p>But perhaps if you had to contribute money back to the S-Corp in 2006 or
if you can demonstrate that most of the income had to be reinvested back in the S-corp (merely a paper gain that cannot equate to income) and that cash wasnt available for stockholder distributions…</p>

<p>Perhaps you could re-run a separate computation and submit it to the school, like a “what-if” analysis and plead your case.</p>