She needs to report income in her own name on her own tax return. This may or may not disqualify her from being your dependent. If she is under 24 and lived at home, she is still your dependent unless she provided more than half her own total support. Since support includes the rental value of her living space at your house, a share of utilities, food, transportation, tuition, etc., it is rare that college students living at home are disqualified from being dependents. If she is a dependent, she still files a tax return, just be sure to check the box for "I can be claimed a dependent of someone else."
In most cases she can't deduct business expenses against the 1099-MISC because an internship is considered part of her education, and as a student, she is not subject to self-employment tax and will not have a schedule C or schedule SE. And that in turn means this is not "earned" income, it is unearned income.
The internship should be posted in box 3 of the 1099-MISC, and when running the 1099-MISC interview, there is a box to check for "this was a scholarship or fellowship." There are a series of questions designed to test whether this ia earned income that she should answer no (no intent to earn a profit, not similar to other paid work, not planning to do the same work in the future, etc.)
Expenses against unearned income are miscellaneous other expenses subject to the 2% and itemizing rules so even if she lists them, she probably won't get a deduction that is better than the standard deduction.
In some cases, the school might not consider the internship part of education; it might be recognized as job with earned income, and in that case the employer should probably pay her on a W-2, not a 1099-MISC. And if on a 1099-MISC in box 7, she could have a schedule C and pay self-employment taxes and deduct her expenses. Of course, commuting and eating are not deductible expenses for anyone no matter what kind of job they have.
