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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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I am hosting a high school student from China. She is here

Customer Question

I am hosting a high school student from China. She is here under an F-1 visa. I received a 1099 from her agency for payments that are supposed to offset the costs of feeding and housing her. In researching the tax code, the only guidance from the IRS is for hosting an "exchange" student as a charitable activity. Under this guidance, I am prohibited from deducting the costs associated with hosting the student to offset the "income" received from the agency and it creates a large tax liability. Exchange students are covered under a J-1 visa which is different from the F-1 visa. This is not a charitable activity, so I need to figure out how I can file this in a way to use the expenses to offset the income.
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: I think I covered it all
Submitted: 2 months ago.
Category: Tax
Customer: replied 2 months ago.
Can I claim the money reported in the 1099 as a "reimbursement" of expenses rather than income?
Expert:  emc011075 replied 2 months ago.

Hi. My name is ***** ***** I will be happy to help you.

The IRS does not give a specific guidelines how to treat such payments. You cannot claim it as charitable donation if you received any type of payment or reimbursement. And you cannot claim reimbursements without claiming an income. You can only deduct expenses against income claimed on your tax return.

How is the income reported? Box 3 or box 7?

Expert:  emc011075 replied 2 months ago.

I see you read my respond. Do you have any questions? Is there anything else I can help you with today?

Customer: replied 2 months ago.
It is reported in box 7. I do not want to claim a charitable donation. I want to claim the expenses of hosting the student to offset the stipend payments received from the agency. The student costs us money for groceries, entertainment, transportation, water use, sewer use, etc (much like our own children) and the stipend we receive is intended to offset those costs. Of course the IRS only sees the "income" reported on the 1099 which creates a significant tax liability for me on top of the student expenses.
Expert:  emc011075 replied 2 months ago.

You CANNOT claim it as charitable donation because you got paid for it. Charitable donation is if you give or do something and expect nothing in return, that's not your case.

If the amount was reported in box 7 - nonemployee compensation, you can claim it on Schedule C - profit and loss from business. This way you can deduct your expenses. But you will have to somehow document it with receipts. You will have to allocate the cost of food consumed by the student (hopefully you have the receipts), mileage for transportation unless the student used his/her designated car, utility based on the percentage of space used by the student, same as mortgage interest and property taxes. Unfortunately there's no easy way and you cannot use an average or per diem rates.

Customer: replied 2 months ago.
I do keep track of the expenses.If I claim it on Sch C, then do I have to pay FICA on the "income"?
Expert:  emc011075 replied 2 months ago.

No. The profit (the difference between what you received and your expenses) will be subject to self-employment tax (15.3%) in addition to regular income tax.

Expert:  emc011075 replied 2 months ago.

Any questions?