Tag: Financial Aid

Posted on by Jan Roberg

Planning Now for Next Year’s FAFSA Application

You may be able to boost your financial aid package if you plan ahead.

You may be able to boost your financial aid package if you plan ahead.

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Parents of seniors are filling out FAFSA applications right now, but if you’ve got a sophomore or junior in high school, then it’s time for you to start planning now so that you get the best possible financial aid later.

 

Here’s the main thing:  if your child is a junior right now, then the income that you make this year will be the income reported on the FAFSA when she’s a senior.  If your child is a sophomore, it will be next year’s income.

 

Why does that matter?  Bottom line:  the higher your income, the less financial aid you’re going to receive.   If your child is already a senior, it’s too late to make any adjustments, the year is already over.

 

So if you’ve got a junior, you want to make your income look lower.  If you’ve got a sophomore, you might want to move up your income for this year, to reduce it for next year.

 

For example:  let’s say you’re a small business owner.  One of my favorite strategies is to prepay business expenses in December to reduce my taxable income for the year.  You can prepay up to a year’s worth of expenses.  This is a smart move when your child is a junior.  If you’ve got a sophomore, you might want to hold off on that to take the income hit sophomore year—when you’re not filing the FAFSA so that you can push more expenses into junior year which is the income year for the FAFSA.

 

Another example of future planning is when to take your capital gains on the sale of stocks.  Now you’re going to want to make good choices, sometimes you’ve just got to sell because you need to sell and the time is right.  But if you’ve got a choice, taking the gain is better in your child’s sophomore year than in the junior year.  Remember, if you’ve got capital losses that are more than your gains, you can deduct up to $3,000 to offset your regular income.  Anything more than a $3,000 loss will just be carried forward to your next year’s tax return.

 

One of the things that can really mess up your income during FAFSA time is taking a distribution from your retirement account.  Sometimes things happen and you just don’t have a choice, but if you’ve got an option to take a distribution like that during the sophomore year instead of the junior year it will help to keep your income down for the FAFSA filing.

 

Now you need to realize that you’re going to be filing FAFSA applications for four years, so you can’t artificially reduce your income for four whole years.  But getting that first year aid package off to a good start can help set the tone for the next four years.

Posted on by Jan Roberg

Getting Your Tax Return Information for Your FAFSA

USU Campus - Old Main

Photo by Cryostasis on flickr.com

One thing that I spend a lot of time on is helping people prepare their FAFSA forms for college. (FAFSA stands for Free Application for Federal Student Aid.) Well, the IRS has a “data retrieval tool” that you can use to just import your tax return information right into your FAFSA application. How cool is that?

This is the information that I received from the IRS:

Use the IRS Data Retrieval tool when applying for a student loan

If you are a student or parent you can now access your IRS tax return information using the 2012-2013 IRS Data Retrieval Tool. This is an easy and secure way to access and transfer your tax return information directly into your Free Application for Federal Student Aid form.
If you are eligible to use the IRS Data Retrieval Tool, we highly recommend using the tool for several reasons:

  1. It’s the easiest way to provide your tax data.
  2. It’s the best way of ensuring that your FAFSA has accurate tax information.
  3. You will not need to provide a copy of your or your parents’ tax returns for your financial aid application.

Who can use it?

If you or your parents meet the following criteria, you’ll be given the option to retrieve, display and transfer your federal tax information:

  • If you filed a 2011 tax return
  • If you have a valid Social Security Number
  • If you have a Federal Student Aid PIN
  • If you do not have a PIN, you will be given the option to apply for one
  • If your marital status has not changed since Dec. 31, 2011.

Who should not use it?

If any of the following conditions apply to you or your parents, you should not use this tool:

  • If you filed an amended federal tax return for 2011
  • If you did not file a federal tax return for 2011
  • If your 2011 federal tax filing status is married filing separately
  • If you filed both a federal tax return and a foreign return

If you do not use the IRS Data Retrieval Tool to provide tax information and your college requests a copy of your tax return or your parents’ tax return, you may be required to obtain an official tax transcript from the IRS. To order tax transcripts, go to Order a Return or Account Transcript at www.IRS.gov.

Okay, it’s back to me talking again. One last thing about the FAFSA – it’s free! Make sure you go to the right website to complete your FAFSA application; this is it: http://www.fafsa.ed.gov/. There’s a fake FAFSA website where they charge you money to apply, so make sure that you’re on the official website. The IRS will only link with the real FAFSA site, so that’s another clue you’re in the right place. And good luck with college!