Comment by xboxnolifes
16 hours ago
The "mistake" is that the assets themselves are the source of income. Sell them off, and the income goes away too. It's the equivalent of expecting the parents to use 100% of their income to put their kids into college, which is impossible.
IF I have stock and make $XX,XXX in dividends, how is that different? IF I have own apartments and make $XX,XXX in rent, how is that different?
I think the idea is that Yes, the expectation is for people to make actual sacrifice before they qualify.
If this was inventory they were counting, sure. But you can’t sell part of a small business. Let’s say the parents own a restaurant, and the value of the land, building, and kitchen equipment is a few million. Do they sell an oven from the kitchen to put you through school? Sell the parking lot?
It’s an all or nothing thing. The business needs all its assets to function, and shouldn’t be considered any more than for its income potential.
Lease back for land and building is definitely possible. Most capital efficient corps do not own their own land and buildings for precisely this reason.
1 reply →
That's economic suicide not sacrifice, for many small businesses the asset produces the revenue. Sell the asset you may as well close the business. It is not a fair assessment of a family's means at all.
It's not equivalent to making all your income off one rental and having to sell it, but it is closer to that. If you sell it, you have no income now. But a small business also creates jobs and provides novel value to the community, so even more is lost than just a single income.
Running a small business is not the same as owning stock. I can own stock and can still work and one does not affect the other in terms of time or capability. On the other hand, selling your small business is equivalent to quitting your job.
Imagine I own farmland worth $10M.
I claim we've had a lean few years, as we had to replace some aged equipment. I'm working all the hours god sends and only making $30,000 a year. There's also, uh, inflation. Market volatility. Climate change. Rising fuel prices. And I'm really worried labour costs are about to rise under this new government.
I also claim we can't sell any of the land without undermining the commercial viability of the farm; and the land would be difficult to sell profitably, because anyone except me and my immediate neighbours would have to travel a long way to farm it. And the remainder of our capital is tied up in crops, which obviously we can't sell until harvest.
On the other hand, it's an almighty coincidence that I needed to replace my tractor, my combine harvester, my skid steer, and my truck all at the same time, just as my kid turned 17. And that I just planted all those apple trees, hops and asparagus that I won't be able to harvest for a few years.
And yet - should MIT be in the business of second-guessing how farmers run their farms? Should my kid be denied a scholarship because some desk jockey in Cambridge thinks he knows the asparagus market better than I do?
It would be similar if your stock dividends were your sole irreplaceable means of support. So, you sell your stock and give the money to MIT. Now you can’t buy more stock, and therefore have no future income. Permanently ending your career to send your kid to college is an unreasonable sacrifice, in my book.
I wouldn't want to make that sacrifice either, but I also understand that im not entitled to tuition assistance as some sort of human right
2 replies →
A bunch of stock is a source of income too, but it wouldn't be wrong to use some of it.
If the business is worth enough then selling it can replace all the income you would have ever gotten from it. It's not as simple as "income goes away". The specific numbers make all the difference.
> A bunch of stock is a source of income too, but it wouldn't be wrong to use some of it.
Normal US tax law that most people fall under says no, stock itself is not income. It's only taxed at the time of sale. If you ask for mark to market taxing then any increase in market value during the calendar year will count as income -- even if you didn't sell anything throughout the year. But usually those people are drawing a direct income from trading.
Yes, but I think these tests look at both income and assets (like stock). That is why people get dinged for owning assets, even if they are a source of income.