[originofspecie]

I feel terrible for Ingrid, but I think the end of her article requires a caveat. The financial aid system is a game, and learning the rules can save a lot of money.

Lets assume that your taxable income was 27k.(36 weeks x 40 hours a week x $26 an hour)

You will be in the 15% tax bracket, so the total tax liability on your income would be approximately(i'm assuming only federal income tax) 23k (27000*.85). This is the number that is used on the fasfa. You had mentioned that you suffered from some health issues and incurred medical expenses. Those are deductible, and should reduce your tax bill, as well as the amount of money that colleges should expect for you to spend on education.

Furthermore college 529 plans are something to look at when trying to fund college education. Contributions to these plans are tax free, so it will lessen your tax bill, especially if you don't work while you are in school. Also the 529's in your name are expected to go towards your education at the same rate as your parents income[1] this will help soften the blow of losing the financial aid.

Finally, don't shy away from student loans, especially subsidized federal loans. At around 4%, it is hard to find cheaper money, and wih subsidized loans, the interest on these loans are tax deductible.

At the end of the day, the moral of your story shouldn't be "Don't take paid internships they'll screw you in the end" and instead it should be "when you start get paid a significant salary hire a tax professional to make sure I hold on to as much of my moolah as possible."

You can put up to 5k in a Traditional IRA. Your deposits will be tax deductible, and withdraws for education forgo penalties of withdrawing money before your 59 and 1/2. You will also pay for tax on it at the level of income for the year you take the disbursements, so if you don't work your senior year or make less money it could work out to your favor. The downside of this strategy is that any money you put into the IRA that year will be counted as income. So no gaming the system on this one.

[1]http://www.savingforcollege.com/intro_to_529s/does-a-529-pla...

[hga]

It's very much not my impression that most people can deduct health expenses. Here from the horse's mouth (http://www.irs.gov/Individuals/2013-changes-to-itemized-dedu...):

"Beginning Jan. 1, 2013, you can claim deductions for medical expenses not covered by your health insurance that exceed 10 percent of your adjusted gross income."

Previously it was 7.5%, but it's nothing if you can't file a Schedule A to itemize, and my very rough understanding is that few who aren't paying down a mortgage can do so.

[originofspecie]

I may be reading this wrong, but from what I understand anyone can file a Schedule A (which allows you to itemize your deductions), but in doing so you give up the standard deductions for your tax bracket, which for a single filer is 5350. So at 7.5% of her adjusted gross of ~25k which is $1875. So if her medical expenses are less than 5350 it would most likely make the most sense for her to take the standard deduction. Otherwise according to this info she should be able to write off the full amount.

I could be entirely wrong about this. I am not a tax professional, but I do think that a little bit of financial planning could go a long way in these types of situatons.

[hga]

Ah, "can" was too strong, "saves money over taking the standard deduction" is what I meant.

I noticed something about a 2% haircut when skimming Wikipedia's entry on this, don't know if it would apply. Properly filling out a Schedule A would also cost, either in paying a preparer or opportunity cost in learning how to do it.

[originofspecie]

Agreed. These write offs were more of an after thought. It looks like she could also write off her educational costs as long as they are to "advance her career", which would effectively bring her gross taxable income pretty darn low and keep the financial aid coming.

That is, of course, if she is footing the bill like she says and her parents aren't helping her out.