I received a 1099-misc, employee compensation for hosting a foreign exchange student. Can I complete a schedule c for the expenses?

[nilamariemanning]

What expenses can I deduct for hosting a foreign exchange student?

[Carl]

You should start reading at <a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p526/ar02.html#en_US_2015_publink1000229664">https://www.irs.gov/pu...> to educate yourself on this, so you can make an informed decision.

[jenniesteele]

I'm confused on this one - I've read a lot indicating that it depends on the situation, and even the tax publication lead me clearly to the same place.  See, if the student is attending a public government program, then, I agree with the recommended answer that you can not deduct expenses, that it is not a business, etc.  However, many people host through third-party programs, for international students who attend private schools.  This is a whole other animal, and I'd like to see more research here about that.  All I have researched has led me to the same place that it WAS intended to earn money, that it IS a business, there is a contractual service being provided, therefore, in all forms, a business arrangement, and business income and related expenses.   Can anyone speak to this?

[Carl]

You do state the tax publication "lead me clearly to the same place.". Understand that this is a public user-to-user support forum. If you believe you have cause to not interpret the IRS pubs as we do, or that a specific publication does not apply to your situation as you have presented it to the readers in this forum, then you may wish to seek the services and advice of a qualified tax attorney or CPA in your local jurisdiction. In this forum, we don't challenge the IRS rules, as that's not it's purpose. We can only interpret them as written, to the best of our abilities.

[jenniesteele]

Read entire string to get to the revised answer of this advisor/contributor, which leads to the solution that if you receive a 1099-MISC for a business contracted activity, with the intent to make money, not sporadically, and are required to report that 1099 on a Sch C, then related expenses are deductible.  Hosting for international students attending private school is an entirely different program than that described in the IRS publication (for which no payment was previously given, or it was so minimal that a $50/month charitable contribution somewhat appeased the extra financial burden/cost).

[Carl]

Bottom line is, if you file a SCH C for income/expenses incurred with a qualified foreign exchange program, you can expect to be audited. Generally, that won't occur until 24-36 months after the return is processed. Chances are high that you will lose on that front too. But since I'm not a federal judge with the powers to define and interpret federal tax law and apply that definition and interpretation to your specific claim, I'm in no position to state what the definitive outcome of such an audit would be.
This forum is for the purpose of assisting TurboTax users with the use of the TurboTax program and to assist as best we can with the interpretation and understanding of tax law. If that interpretation is not what the poster wants to hear, then so be it.

[jenniesteele]

Good to know.   Happy tax season.  Best of luck.

[LeeM · Accepted solution]

No, you should not complete a Schedule C since it was not your intent to make money. In addition, since you received money/reimbursement for hosting the student, you are not entitled to the $50/month charitable contribution that is allowed for hosting some foreign exchange students.

You will need to enter the 1099-MISC by following the instructions in the FAQ below, however it will not be subject to self-employment tax (which it would be if reported on a schedule C) and will be reported as Other Income.

You will want to make sure that you select that "you did not intend to make money" and that it was "not like your normal job" when asked in the interview portion of TurboTax.

https://ttlc.intuit.com/replies/4770594

[sactottuser]

How do YOU know it wasn't their intent to make money??  I bet it was!  It was our intent, for sure, so we've been  (legally) writing off our offsetting business expenses to avoid nasty self-employment "taxes" plus regular income taxes.

[Carl]

Because per the IRS, intent is irrelevant when it comes to a foreign exchange student. IRS Publication 529 specifically states what can and can not be claimed for a foreign exchange student. It also clearly states where they are to be claimed, and it's on the SCH A, not the SCH C.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p526/ar02.html#en_US_2016_publink1000229664">https://www.irs.gov/pu...> identifies the basics of what can be deducted.
Then at <a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p526/ar02.html#en_US_2016_publink1000229849">https://www.irs.gov/pu...> under "How to Report" it directs the use of SCH A, not SCH C.
Now if your business, which has nothing to do with foreign students and education, is sponsoring a student, then that's a whole different ballgame. But that won't work for a sole proprietorship or single member LLC reported on SCH C. It would need to be a partnership, S-Corp or C-Corp that reports on a 1065, 1120 or 1120-S.

[sactottuser]

I just read and searched that publication, and I see nothing with regards to your second sentence.  Please enlighten me.  And see this article <a rel="nofollow" target="_blank" href="https://lisathetaxlady.wordpress.com/2015/02/06/income-received-for-serving-as-a-host-family/">https...>, which is what put me on to my way of thinking, although I came away with a different conclusion than she did, and I see that some others have, too.  

The bottom line is at the top of the blog: "If the payments received are taxable, the logical question is whether the related expenses are deductible.  The answer is 'it depends.' The first question to ask is if the income qualifies to be reported on a Schedule C, that is, is the activity of hosting an exchange student a trade or business?  The IRS provides the following definition:  'An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity.  For example, a sporadic activity or a hobby does not qualify as a business.' "   We've been hosting students a year at a time for years, for the purpose of making money to put our own kids through private school, so yeah, it's a business pursuit, although we failed to write it off as such (and thus paid taxes on the whole amount) before these last two tax years, and it sure wasn't fair that we were being taxed on gross and not net income from hosting (because the extra food, utilities and auto expenses really add up).

[Carl]

Good for you. Do you feel better now that you have proven your superiority? If so, I invite you to become an active participant in the forum, particularly during tax season. It gets so busy in here between Feb-Apr every year, then regardless of the number of participants, it's just not possible the answer all the questions faster than they're posted. So the more participating here, the better.
But keep in mind, that while I'm sure there are a few, there's just not that many who say "I'm going to start my own business hosting foreign exchange students." For those that only do it a year, it's usually a one time thing, and their intent is not to make money, but to expand their horizons by bringing culture into their home, when they can't afford to go to where the culture is. For those that do it as a one time thing or even for the five calendar years a student may be here to get their college education, that doesn't necessarily qualify it as a business; especially if only one student is involved. If there's an audit, one may have a hard time proving their case.
But I get your point. Do you get mine?

[sactottuser]

My superiority?? Ouch! I'm sorry if I came off that way. Yes, I get your point. This will be our third consecutive year with two students, so for us, it's a business that has the benefit of blessing others and us as well.

[Carl]

I still want to encourage your participation here - particularly when tax season starts after the new year. A new, fresh and unique perspective and interpretation/understanding of tax law is always welcomed and encouraged. For example, based on my reading of the tax laws concerning exchange students, it had never occurred to me that one could do such as a business, and still be within the legal descriptions of tax law specifically concerning exchange students. I actually wish I had thought of this first! I see it as a loophole, and one that should (and can) be taken if there's a realistic possibility of using the IRS's own rules to one's advantage, should it ever be challenged.
I'm no lawyer, but based on your input, I can only say for your specific and explicit situation, "why not?". Of course, participants who are offering help do need to be careful. If you were to have asked me if you could treat this as a business, then it would have been hard pressed to say no, because I would (and was, after you clarification above) be unable to find anything to support a "no" answer. If some rule exists that says you can't do this, then it's so well buried in the IRS Pubs I can't find it, and I'd bet anyone at the IRS reviewing your tax form would be able to either.
The primary focus and purpose of this forum is two-fold.
 - To assist users of the TurboTax products with the use of those products in the way of functionality, navigation, and any problems or issues the software may create or cause for the users.
 - To assist with the interpretation of tax law, as we the common user with no formal training in tax law or interpretation of same, understand it and as generally accepted and interpreted by the common reader to the best of one's ability.
So by all means, please hang around, check out a few of the posts from others and throw in your two cents where you believe it can be helpful, useful, and/or information for all. During tax season in particular, there's no such thing as "to much help". 🙂

[designgreenlands]

We have a 1099 for about 5000 for hosting a student, definitely did it to make a little money, and we have lots of expenses, including food, transportation and we added some walls and a window in our house to make a bedroom for her. We also live in a two flat (and rent half) so already claim half of the taxes, interest, etc to claim a loss on that rental. What kind of income is it? and where do we claim our expenses? and what about the renovation on our house?