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Hi. My name is ***** ***** I will be happy to help you. Amount in box 7 - nonemployee compensation is considered freelance/independent contractor type of income. It will be reported on Schedule C along with the expenses. You can deduct reasonable and necessary expenses like food, percentage of utilities, travel, small gifts and such.
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Schedule C is for business but also for independent contractors/freelances and side jobs. The income reported in box 7 is subject to self-employment tax. Your options are to report it on line 21 (subject to SE tax) and deduct the expenses subject to limitations on schedule A or claim it on Schedule C and deduct the expenses directly. Yes, there's 3 out of 5 years profit expectations but as long as you break even IRS or make a little profit every other year, IRS will not have a problem. If you claim it as hobby income, you could deduct the expenses up to the amount of the income but you will run into self employment tax situation. IRS is expecting this type of income to be reported on Schedule C.
IRS doesn't really provide too much information about this type of situation. But in general, if you host a exchange student and you are not being paid, you can deduct up to $50 per day as charitable donation. If you host a student and receive 1099Misc with amount in box 3 (other income), you will report it on line 21. This type of income is not subject to self-employment tax. If the income is reported in box 1 - rent/royalty, the income would be reported on schedule E as passive rental income (not subject to self-employment tax). Income reported in box 7 - nonemployee compensation is reported on schedule C and is subject to self-employment tax. You don't need to have a business to file Schedule C. Schedule C is for an earned income, activity that is not a hobby. As I said before, as long as you don't run huge looses every year, you will be all right.