FAFSA assets: What is the value of a family business?
When completing the FAFSA, applicants are required to list the value of assets like investments, real estate, and a business. But not all businesses are the same. Owning a small business is different than owning a large company or being self employed, and in 2006, the FAFSA began to count small businesses differently on the FAFSA.
FAFSA Small business exclusion: This exclusion allows the applicant to omit the net worth of a small business from the FAFSA. This is a boon for families that derive income from a small business as not counting the net worth could help increase financial aid eligibility. To be sure, a small business for FAFSA purposes would be defined as follows:
- Employee requirement: A Small business must have 100 or fewer full-time equivalent employees.
- Owned and controlled by the family: Specifically, more than 50% of the voting rights must be owned by the family. Some of these family members may not be counted for FAFSA household size, but must be directly related to or related by marriage to people counted in household size.
This can be a big bonus as normally a business asset would be evaluated to include the market value of land, buildings, machinery, equipment, and associated inventory minus any debt where the business was used as collateral. Regulations dictate that any assets owned by the small business are also excluded as from FAFSA assets, in addition to the business itself.
Don’t forget to follow us on Facebook!