Federal Small Business

Federal Small Business

Small Business Owners Can Save Thousands on College Costs!

College and college-bound families should be looking into a unique opportunity to save tens of thousands of dollars on college costs for school year 2007-2008.

For the very first time, there’s a loophole in the 2007-2008 Free Application for Federal Student Aid, (FAFSA). As a result, families who own and control a small business and who are only required to complete the FAFSA, have a rare opportunity to capitalize on a financial aid bonanza!

I direct your attention to a provision in the Higher Education Reconciliation Act of 2005 (S. 9132), which was approved by the Senate on Dec. 31, 2005, by the House on Feb. 2, 2006, and signed into law by President Bush on Feb. 8, 2006, that states, “The net value of small businesses with not more than 100 full-time equivalent employees is excluded from the definition of assets.”

Accordingly, small business owners (parents, not students), or those who can legally set up a small business under the federal guidelines, will reap huge rewards in the form of untold thousands in financial aid previously unobtainable!

It is highly advisable to set up a C or S Corporation, LLC, or at the very least, obtain an Employer Identification Number (EIN) for a Schedule C business. In that way, the small business will have its own individual tax status. However, I recommend that a tax advisor be consulted before choosing any particular corporate entity.

529 Plan owners can benefit as well

In the financial aid formulas, students have no asset protection allowance, which means that for every dollar a student has, they lose 20 cents per year in financial aid. Parents fare far better and only lose 5.6% per year over their allowance which increases with age. Now that both 529 Pre-paid Tuition and 529 Savings Plans are considered parent assets. I recommend the following:

For 529 Plan owners, it’s a bit more complex. Those parents who own one can legally transfer the entire account value into a similar plan owned by their small business entity, but need to be aware of the downside. The transfer could trigger a taxable event, but only on the gains in the 529 Savings Plan. Once the transfer has taken place, if the beneficiary is ever changed, it could also result in a taxable event. Nonetheless, the strategy makes perfectly good sense, as the benefits far outweigh any modest income tax consequences. Go for it!

About the Author

Reecy Aresty has been a financial advisor since 1977, and is founder and president of College Assistance, Inc., located in Boca Raton, Florida. He is the author of "How To Pay For College Without Going Broke," an invaluable, critically acclaimed, parent/student manual, (updated from its previous edition, "Getting Into College And Paying for It!"). Arguably the most revealing book ever written on college admissions and financial aid, it is also the only book of its kind available in Spanish. For the past 28 years, Reecy has helped thousands of families send their kids to the college of their choice for less than they ever dreamed possible. For more information on admissions & financial aid, and to checkout the best college book on the market today, please visit: Paylessforcollege.com

Is it worth it for a high school tutor to register his small business with the Federal Government?

I am going into my senior year of high school in the fall and I will be expanding my small tutoring business. Last year, I tutored 3-5 kids myself and this year, I plan to tutor a minimum of six, and have at least two employees working under me who will be tutoring frequently as well. My question is this: since I am going to be advertising very openly to get as many students as I can, is it worth it for me to file the necessary paperwork and pay the necessary fees with the government? Most tutoring is done under-the-table, especially if it's done by students themselves. However, I don't really like the idea of risking my business [keep in mind that I will have wage-earning employees working under me] if, say, a parent of a student works for the IRS or something. Am I thinking too much into this? Thanks in advance!

Do not listen to the first poster... he's obviously doesn't recognize your serious intent and desire. Even if you're running a small business with a lot of "under the table" cash, there's no reason to not start learning how to do things the right way now. You will only benefit from the knowledge you'll acquire, and it will help you in future business endeavors.

First of all, it's not a question of it being "worth it", it's a matter of it being legal! If you are making an income from a service you provide, and if you have a payroll, you most certainly are "in business", and are bound by the same laws as anyone else in business. If you are making over $5000 a year, you definitely need to consider becoming a legit entity, preferably a corporation.

You may not need to "register" with the federal government, per se, but you need to set yourself up as a sole-proprietor or a corporation in the County and State in which you reside. This usually means a trip to the County Clerks office, choosing a name for your business, and paying the small fee to file your business. You will be issued a federal tax ID number (this is probably what you meant by registering), which may also be used as your state tax id (resale) number if you buy or sell items through your company.

Unless your "employees" are treated as subcontractors, you will need to obtain workman's compensation insurance, a disability policy, and unemployment insurance. You will probably want to enlist the services of an accountant to handle your quarterly federal and state witholding, and your corporate taxes if applicable. A good accountant can help you with a lot of the initial requirements in starting a legitimate company.

As far as your liabilites go, you need to consider a few things. If you have employees working for you, what they do in your employ is your responsibility. Suppose one of them is working for you in a students house and steals something, or damages something in that house, while on the job. You could be held PERSONALLY RESPONSIBLE for that stolen property! You could also be sued personally, and could lose your own personal assets, and depending on your age, your parents assets could also be at risk. This is why people incorporate... to protect themselves from liabilites the business may incur.

You also need to realize that the IRS does not discriminate between the size of a business that is violating the law. Whether you are a business or an individual, If you evade paying taxes, you can be fined or prosecuted. This is especially true if you have employees and don't withold taxes from their paychecks. The IRS considers that tantamount to you stealing from them. IRS penalties for tax evasion are sever, and they usually CAN NOT be discharged, so it's always better to play it safe and do the right thing. Bottom line - If you make the money, pay your share. In theory, a small operation like yours would probably fly well under their radar for years, but why risk it?

There are many benefits to owning a business, even at your age. You can pay for many day-to-day expenses like your cell phone, internet service, computer equipment, gas, vehicle maintenance, stationary supplies, even some meals, with pre-tax dollars. You obviously already have a good head for business, and want to learn how to do things the right way, so now is the best time to learn how the system works, and develop good business habits. There are many good books available. I recommend Own Your Own Corporation - Why the Rich Own Their Own Companies and Everyone Else Works for Them by Robert T. Kiyosaki. His other books are also excellent. You should also read The E-Myth Revisited by Michael Gerber.

Good luck!

Self Employed Federal Tax Deduction Tips for 2009, 2010.mov

 

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