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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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Received a 1099 misc box 7 non employee compensation foreign

Customer Question

Received a 1099 misc box 7 non employee compensation for hosting foreign students. Can I file a Sch C with expenses related to the student? i.e. food, travel, tutoring, internet, etc.? what is excluded? Is this a big audit item and if so should I just leave it alone??
JA: Thanks. Can you give me any more details about your issue?
Customer: I host a foreign exchange student who lives in my home for 10 months while going to school. In exchange for a monthly fee I am compensated for supplying all of his needs including food, transportation, lodging, laundry, cleaning, providing a private room and bath just for him. there is only a very small portion left for profit and w/o deductions I shall be paying taxes on it as well as all of my expenses
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Submitted: 9 months ago.
Category: Tax
Customer: replied 9 months ago.
Ok, I paid the fee. Question again is.... since they checked box 7 on 1099 I believe I need to file a sch C. Can I claim all my expenses related to live in hosting of a student? and what do I call my business on Sch. C? What items should not be claimed as expenses or would invite an audit? Is this type of business activity an audit risk?
Expert:  Lev replied 9 months ago.

Please be aware that -when we have the form 1099 misc box 7 - the IRS is expecting to see that amount on schedule C and self-employment taxes on net income.

That is not "a big audit item" by itself - but if simply ignore that reporting - you most likely will receive the IRS letter with proposed assessment - so " just leave it alone" is not an option I would consider...

Otherwise - I agree with your position - to file schedule C and deduct all qualified expenses.

.

Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business operates to make a profit.

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.

You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. You must generally prepare a written record for it to be considered adequate. This is because written evidence is more reliable than oral evidence alone. However, if you prepare a record on a computer, it is considered an adequate record.

Let me know if you need any help with reporting.

Customer: replied 9 months ago.
I believe their are explicit rule regarding hosting students at home. I was expecting Box 3 to be checked however perhaps they did me a favor checking Box 7 since I can now file a Sch. C and deduct expenses. Are you familiar with other situations like this and what they can or cannot claim as expenses?
Expert:  Lev replied 9 months ago.

There is no special regulation regarding that type of activity as hosting students - and in most situations compensation is reported in box 7.

Regarding classification of you activity...

That is not a rental payment - so that is mainly a compensation for SERVICES you provided - including the use of your home - and I do not see any issues to treat that as your business as long as it is profitable.

So far - I do not see any issues if you will use schedule C and deduct qualified business expenses - and I would not expect any questions from the IRS either.

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