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emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3170
Experience:  IRS licensed Enrolled Agent and tax instructor
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I house a 16-year old exchange student from a foreign

Customer Question

I house a 16-year old exchange student from a foreign country and receive a monthly stipend of $400 from Global Language Service Networks - a non-profit organization. I spend this money on food, clothing, utilities, and travel for this exchange student.
Global Language Service Networks sent me a 1099-Misc (tax year 2015) with an amount of $4800 in box 7.
Where do I report this $4800 of income on my personal tax return and where do I report the $4800 tax deduction spent on food, clothing, utilities, and travel for this exchange student?
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

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.

Expert:  emc011075 replied 1 year ago.

Any questions? Is there anything else I can help you with today?

Customer: replied 1 year ago.
But I thought Schedule C was for a business and what would I enter as the principal business code?
Customer: replied 1 year ago.
I do not have a business motive for housing the exchange student
Customer: replied 1 year ago.
If I show breakeven or a loss every year for many years (e.g. five years) can't the IRS classify the activity as a hobby and disallow my expenses?
Expert:  emc011075 replied 1 year ago.

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.

Customer: replied 1 year ago.
Thank you.
Expert:  emc011075 replied 1 year ago.

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.