Monthly Archives: November 2014

Removing the Mystery from College Financial Aid

One of the many great mysteries for parents with college age children is “How is the amount of federal student aid determined?”

This mystery begins as you tackle the gauntlet of filling out and submitting the Free Application for Federal Student Aid (FAFSA) form.  You do your best to fill out this form accurately reporting the assets and income of your family.  I apologize upfront that I won’t be able to solve the entire financial mystery for you in the this short blog but at least I can shed some light on some of the general concepts which could allow you to better organize your family’s assets to better take advantage of available financial aid for college.

Need-based financial aid for college is not just based upon family income; it is also based on how much a family has saved and in what type of financial instrument those savings are being held.  The financial aid calculator takes a small amount of the parent’s income and assets and sets them aside as an allowance for minimal living and excludes that from the calculation.  Income and assets above those parental allowances, plus just about all of the student’s income and assets are then subjected to various percentage rates.  This calculation determines the “Expected Family Contribution (EFC)” or the amount a family is considered to have available to put towards college costs for that year.  The formula counts the following resources as being available to pay college expenses:

·         20% of a student’s assets (money, investments, business interests and real estate)

·         50% of a student’s income (after certain allowances)

·         2.6% – 5.6% of a parent’s assets (money, investments, business interests and real estate; based on sliding income scale)

·         22% – 47% of a parent’s income (based upon a sliding income scale)

Qualified retirement accounts such as traditional IRA’s, Roth IRA’s, or 401(k)s whether owned by you or your child are not counted in determining EFC for purposes of federal financial aid.  The equity in your primary residence, a family-owned business, insurance policies and annuities are also excluded from your assets in the EFC calculation.

Assets that belong to the student result in a greater reduction in financial aid.  Custodial accounts such as UGMA/UTMA accounts are considered assets of the student.  Financial aid formulas track 529 plans and Coverdell ESAs as assets of the parent, so as long as the student beneficiary is listed as a dependent on the parent’s tax return.  Any 529 plans owned by a grandparent or anyone else are not counted as assets for federal financial aid eligibility.

Note that some colleges can calculate financial need using different formulas when offering their own grants and tuition discounts.  Some colleges may count home equity, sibling assets and certain investment accounts differently than this federal methodology.

I hope this has solved some of the mystery surrounding the federal student financial aid computations and gives you some thoughts on how to position your assets and those of your children so as to best take advantage of college financial aid.

–Scott Goldstein, Partner, CPA

Identity Theft: When Imitation is not the Highest Form of Flattery

Theft of our identity is a perpetual worry to us all.  However, what is less publicized is the use of this information to commit tax fraud in your name.

The filing of false tax returns is a major issue for the IRS as well as those individuals whose identities are stolen.  This is mainly the case because most people don’t have an understanding of the motivation for a criminal to file a fraudulent return.  There are several incentives for these scam artists.

The most popular reason is to take advantage of refundable credits, such as the earned income credit, which is one of the most common targets.  The criminals file a return before their target does, and then the refund check goes to a false mailing address.  The taxpayer only becomes aware of the theft once they electronically file their return and it is rejected because the IRS’s records indicate that one was already filed.

If you find yourself in this position, the IRS has an “Identity Theft Affidavit” (Form 14039) which starts the process of your account being marked for suspicious activity.  According to the IRS, an average case resolution is about 6 months, but can run longer.

There are some things that can help limit your exposure to identity theft.  For one thing, know that the IRS never contacts taxpayers via email, phone, fax or social media.  Any correspondence you receive in those media are “phishing” attempts.  If you receive a tax notice, don’t ignore it.  Instead, contact the IRS or related State Tax department directly.  Always corroborate any contact numbers that may be listed on the notice with the respective government websites, such as, or with a CPA, as part of your tax preparation checklist.

-Raymond Neubauer, CPA, Partner

Valuation Issues of Law Firms in Divorce

Attorneys in all practice area specialties will experience divorce as much as the rest of the population. Your practices and licenses may be marital property and subject to equitable distribution.  This blog discusses the various aspects, methods and unique issues surrounding law firm valuations, whether you are a sole practitioner partnership (LLP), P.C or P.C “S” Corporation.

Law firm valuations in a divorce provide unique and special problems.  There are numerous valuation factors that define the scope of a law firm valuation pursuant to a divorce.

  • Valuation date (for divorces, the date of commencement of the marital action)
  • Percentage interest being valued-is it a majority (controlling) or minority (non-controlling)
  • Standard of value (fair market value in NYS divorce cases)
  • Premise of value (is practice a going concern or imminently liquidating)
  • Valuation methods (Income, Market, Net Adjusted Value of balance sheet)
  • The production of a Valuation Report stipulating the valuation expert’s conclusion of value
  • Personal  Injury Law firms – contingency fee lawsuits in process
  • Trust and Estate Law firms – Projection of future income from existing wills held by the firm
  • Restrictive buy-sell agreements
  • Privileged, confidential and proprietary information – Court may require production of records under a protective             order
  • Work in progress (unbilled hours)

The valuation of a law firm is considered an asset sale regardless of the legal form of the practice.  This means that a hypothetical buyer is not acquiring all the assets and liabilities, and separate calculation of assets retained by the hypothetical seller is added to the valued practice reduced by the liabilities similarly retained.

 -Dennis Kremer, CPA, Partner

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