I know of one family that run a profitable business and own ~10 rental properties. Their accountant has structured things such that they are making so little profit that they are able to get government subsidies for low income families. The 'typical assets' clause would probably be to disqualify people like that.

It also implies that parents with modest incomes who scrimp and save for college tuition for their kids are kinda punished for it.

The amount universities expect a family to pay for college in the US depends on two numbers: annual income and assets. A fairly typical formula for the expected family contribution is (income - allowance) * X + assets*Y, where the "allowance" depends on things like size of family, parents' ages, state of residence, etc, X varies from 22 to 47% depending on the size of (income - allowance) (and in particular there are various brackets in there, with different marginal rates, etc), and Y is generally about 5.7%. This is all for the parents; student income and assets are treated more harshly.

All of which is to say that the college might think you can pay a lot because you have a lot of income, or because you have a lot of assets.

What counts as "assets" varies also. Obviously things like bank accounts and stock investments are included, though retirement accounts are typically excluded. Home equity for the primary residence is included by many private colleges but not by the FAFSA's methodology (which is used by most public colleges, as I understand).

So yes, this can be a massive caveat. Stanford does consider home equity as part of your assets, so if you have a fully paid off house they may effectively assume that you will take out home equity loans or a mortgage on it to help pay for the college education.

Of course it's not that common for families with income of < 125k who have college-age kids to have a fully paid off expensive house. So in practice for many people this is not an issue. But there are absolutely people who are asset-rich and income-poor (think retirees!) for whom the fact that all this stuff is not purely income-based makes a huge difference.

Owning your own home would be considered fairly typical for an American household.

It's to protect against people who have a million dollars in assets but make "only" $100,000 a year.

And support families who blow their income on fancy cars and vacations instead of saving

The super-wealthy can play accounting games to have relatively low income but huge assets.

That's largely a myth.

In what way?

As in it's something that people seem to think based on no real evidence.

I think I understand what you're getting at (i.e. it's not as widespread?), but at the same time, I can think of numerous situations where wealthy individuals use deductions and tax advantaged assets to shield income.

Wealthy individuals have greater spending flexibility and access to things like trusts, asset relocation to no-tax locations, deductions, etc.

In '09, 35K households with income over $200K reported 0 tax liability [1].

[1]http://www.businessinsider.com/some-of-the-wealthiest-pay-no...

You do know what happened in 2007-2008 which allowed for this, right?

Admitting that the wealthy played accounting games in one particular year doesn't exactly disprove the thesis that the wealthy play accounting games.

It's not accounting games to pay lower taxes when you lose a lot of money.

In a downturn, I wouldn't necessarily assume that someone has sufficient gains to offset their losses. They could just be losing money.

Also, there are restrictions on how you carry forward losses and how much you can deduct in later years.

edit: I think the issue is you're being nuanced about the connotations of "accounting games" (I mention this downthread and argee that some tactics are straightforward.) the user [tiler] above, responded as if the recession explains how 35K people with $200K+ income had 0 tax liability, which is silly.

It's not exactly an accounting trick if you do one of the following:

1) Earn most of your income in a foreign country so you pay taxes there instead of the US.

2) Earn most your income from tax exempt bonds.

Anyone can do this. You don't need a fancy accountant. Just either:

1) Move to a foreign country and get a job there.

2) Buy a bunch of tax exempt bonds.

These aren't people with high paying jobs somehow magically not paying taxes on them. So, like I said: "largely a myth".

I reject the premise that anyone can move to a foreign country, select tax exempt bonds and gross at least $200K/year. Maybe you as someone who appears smart and ambitious could pull it off consistently, but that's tough to do.

You seem to be getting hung up on whether there's anything "novel" about a subset of tax avoidance schemes and not mentioning trusts or other tax schemes disproportionately used by wealthy individuals such as offsetting income with high medical costs or moving assets to lower-tax jurisdictions.

FWIW, the IRS study in the article referenced breaks down these expenses for folks without worldwide income.

I certainly agree that moving to a foreign country and getting a good job there is hard. Further I agree that buying bonds that gross 200K a year in interest is expensive (though it's not hard to select them). However neither of those things constitute "accounting games." They are extremely straightforward aspects of the tax code available to anyone.

They also won't actually save you any money. With the former you'll just be paying taxes to a foreign government instead. With the latter you'll get a lower rate of return than you would for buying other bonds.

I didn't mention "trusts or other tax schemes" because the Forbes article you linked to didn't mention them. It didn't mention them because those aren't actually ways to get out of paying taxes. That is, as I said upthread, largely a myth.

You bring up medical costs so I'll touch on those as well. People don't get sick or injured and pay lots of money for medical treatment to avoid paying taxes. Certainly one can debate whether such expenses should result in a tax reduction but we, as a country, have currently decided that they have in most cases. Again this doesn't constitute "accounting games." They are, again, very straightforward deductions available to all. Keep in mind though that you do have to spend the money on medical care instead of taxes though. So you won't have saved any actual money to spend out a house or a new iPad or whatever.

OK. I didn't realize you were being nuanced about the definition of "accounting games" and its connotations. I agree that these tactics are straight forward.

It's not nuance. it's just being straightforward. A lot of people (including the person that started this thread) seem to think that the "super-wealthy" can play "accounting games" to avoid paying taxes in a way that is somehow mysterious, nefarious or unavailable to everyone.

In reality, things are actually fairly straight forward when it comes to our taxes and most of the time if you're earning money you're paying taxes. If you aren't, it's generally for a pretty good reason.