In a case where the parents are required to use Form 1040, such as claiming itemized deductions instead of the standard deduction, it may be beneficial for the family to plan their income and expenses in order to file an IRS “short form” and to keep their adjusted gross income under $50,000. If these requirements are met, the family’s assets may not be included in the financial aid calculation.
A child had $100,000 in a trust fund (The $100,000 alone would equate to an EFC of $20,000.). The parents were both teachers and had a combined income of $49,000. The itemized deductions on their upcoming year’s tax return were estimated to be $11,600. At the advice of their financial advisor, they timed the payment of their itemized deductions so that they would use the standard deduction on their tax return. The parents are now eligible to file an IRS “short form and have income less than $50,000. The student now qualifies for the Simplified EFC exception, and neither the student’s nor the parents’ assets are assessed.
If you are in a financial aid asset assessment rate of 5.6%, you could increase your financial aid eligibility up to $56 for every $1,000 of asset reduction by meeting the simplified EFC requirements. Student assets, assessed at 20%, would also be excluded and would increase financial aid eligibility by $200 for every $1,000 of asset reduction.