A farm family may qualify for a substantial amount of financial aid if the farm income can be held down during college years. Because of the income averaging method of calculating tax liability for farmers (IRC Sec. 1301), the negative tax effect of deferring a large amount of income into post-college years will be minimized.
The parents reduced their income $5,000 by utilizing farm income averaging. Since the parents income was assessed at 47% the income reduction may increase the childs financial aid eligibility by $2,350 ($5,000 x 47%).
If you are in a financial aid income assessment rate of 47%, you could increase your financial aid eligibility up to $470 for every $1,000 of income reduction by utilizing farm income averaging.