What are the standard formulas for deductions for meals, travel and entertainment for hosting international students when you receive a stipend?

[auntgale1]

The response from Turbo Tax appears to contradict the Qualifying expenses section of 2015 Publication 526, which states you may be able to deduct the cost of books, tuition, food, clothing, transportation, medical and dental care, and entertainment that you actually spend for the wellbeing of the student. This Publication also states that in most cases, you can't claim a charitable contribution deduction if you are compensated or reimbursed for any part of the costs of having a student live with you. So it appears I cannot take the $50 charitable contribution deduction but I should be able to deduct the qualifying expenses listed above from the income received. Is my understanding correct? Can you provide any clarity on the amounts that can be deducted for food and transportation. Can I use the standard formulas for transportation at .53 per mile and $46 per day for food?

[GeoffreyG · Accepted solution]

Hello auntgale1:

In reply to your question, there really aren't any standard formulas for expenses related to hosting a foreign (international) exchange student.  In fact, the maximum amount that you can claim as a "charitable contribution" for a hosting such a student is $50 per month, per student.  There are no other tax benefits for hosting students from overseas, unfortunately.  If someone previously advised you that there are, we are sorry to inform you that that advice was incorrect.

To be specific, a foreign exchange student cannot be claimed as a dependent on your tax return; neither are they your employee.  Therefore, medical, transportation, food, entertainment, and travel expenses that you may pay on their behalf are not tax deductible costs (hence, no standardized tables or formulas).

However, if the student was formally placed with you through a government agency or some non-profit organization, you can claim up to $50 per month as a charitable donation.  For more details on this, please see IRS Publication 526 (2016), Page 4 at the link below (Topic:  Expenses Paid for Student Living With You).

https://www.irs.gov/pub/irs-pdf/p526.pdf

Please also keep in mind that the $50 maximum figure would be for monthly amounts that you would have spent on behalf of the student, in excess of any stipend you may have received for that student.  For example, let's say your actual out-of-pocket expenses for the exchange student totaled $1,040 in March, 2016.  Let's further say you also received a stipend of $1,000 for that month.  With those facts, your charitable contribution for the month of March would be calculated as $1,040 - $1,000 = $40.

On the other hand, if the stipend exceeds the actual monthly student expenses, then you don't have to report the excess as taxable income.

As a further restriction on the charitable contribution, note also that the deduction will not actually help a taxpayer (by way of a lower tax bill) unless they are already Itemizing their deductions, instead of taking the Standard Deduction, as 70% or more of taxpayers do.

Thank you for asking this important question, and we hope that this information helps to clarify matters.