Homestay Tax Questions
As required by law, those who receive stipend payments in excess of $600/year will receive an IRS 1099-MISC form from AHN. The form will identify your total receipts over the course of a calendar year, if you hosted more than once you will receive only one, with a grand total of your stipends. This is the gross receipts for your service as a homestay host, not your taxable income from hosting. The IRS and state and local authorities will tax you net income, which means you take your gross stipend, deduct the expenses directly associated with hosting and then declare the balance as taxable income. For most hosts, this balance is negligible after you adjust for room and board expenses.
Most hosts will declare these expenses/adjustments on Schedule C of your 1040. This is the form commonly used for personal business income. While you don’t have to be a business to be a homestay host, Schedule C provides the easiest was to report your host expenses and declare your net taxable income. The bottom line gain (or loss) is then transferred to your 1040 as taxable income.
Where are deductible expenses for homestay?
The expenses come from the cost of doing business as a homestay host. The IRS has provisions that state these costs are exclusive to the hosting and not things you do in normal home life. You should keep a log of these for later referral at tax preparation time. Here are some ideas of deductions you can take to reduce your income:
- Computers, cameras, furniture, etc. purchased exclusively for hosting.
- External, contracted labor for who may help with cooking, cleaning, language tutoring, etc.
- Auto expenses using the IRS mileage deduction ($0.535 in 2017). This is for expenses directly related to hosting and can include tolls and parking.
- Related education expenses for you (education deemed necessary to run a hosting business.)
- Meals and entertainment related to the business.
- Personal and household items used exclusively in the business.
- Tax services, legal, planning, insurance, etc.
- Home office, including a % of all utilities, internet, mortgage/rent, phone.
- % of all home expenses relative to the square footage of the rented room/dedicated bathroom OR a per capita split of all expenses (you can use whatever is larger.)
- Food expenses and personal supplies provided to the guest.
- Business-related travel.
Key to these deductions is the exclusive use in the hosting or in the management of your homestay business. Here are a couple of examples:
- You drive your family and your guest to get ice cream; because the outing is for everyone, the mileage is not deductible. The ice cream to the guest is. If you drive only the guest to get ice cream as part of your meal obligation, you can charge mileage and the guest’s ice cream, not your own ice cream.
- If you run out of salt and have to go to the store to restock an item used by everyone in your household, that mileage is not deductible. If you run out of a particular spice that is used exclusively in the preparation of meals for the guest, that mileage is deductible.
- At no point is a personal hourly wage to you, the business owner, deductible but if you pay your neighbor $10 to drive your guest to school, that service fee is.
- If you dedicate an office area exclusively to manage your homestay enterprise, that square footage can be added to your percentage of deductible area, but it must be exclusive. If you buy a file cabinet to store receipts, that expense can be deducted if that cabinet is dedicated to homestay use.
What if expenses are greater than income?
The intent of the Stipend is to compensate you for your costs of hosting a student. This amount is adjusted for the cost of living in your area. Since students you are hosting are paying both tuition to the schools and room and board to you, the tax law states that the room and board are income to you the host. Defining homestay as a business is for tax purposes and doesn’t re-define your home as a place business or require you get any extra licenses. Your stipend, for tax purposes is defined as GROSS income. Don’t panic, as a business you just pay taxes on the NET income, which is the amount after you itemize your homestay deductions and expenses. It is possible that your business would even lose money (on paper), but the IRS does not like to see ongoing losses. If your Schedule C reflects a significant loss (negative income) this provides a tax break, but it puts you in a position where the IRS may question your expenses and disqualify some of those deductions. If you sustain a loss for more than three years, you are likely to be flagged for review by the IRS, so we recommend that you be pro-active and speak to a tax professional if you have significant losses from Homestay activities.
In short, don’t panic when you get that 1099 at the end of the year…
At the end of the year, AHN will send you an IRS form 1099, which is a statement of your GROSS stipend (payments). As we stated above, this is not the amount to report, you report the NET proceeds as income on your taxes. For most people, that means filing a Schedule C to your 1040. It is a one page worksheet in which you report your expenses by category.
Most hosts should not see much in the way of NET income from working with AHN. With proper documentation including a mileage log, you can reduce your taxable income. And meanwhile, working with American Homestay Network means you get the advantage of a fully-managed homestay process, not a company that drops a student into your house and then goes hands-off to avoid all liability. American Homestay Network stays with you 24/7, as long as the student is with you – insured, supported, and fully engaged. We manage all billing, pay you directly every 2 weeks, and do all we can to ensure you want to keep hosting with us because you love the experience. You also get to sleep well at night knowing you are above scrutiny by the law and the IRS, a little cash-richer and a little taxable income poorer. Sleep tight!
But just to be sure you sleep tight, we remind you that every situation is different, don’t rely exclusively on this and you should consult your tax advisor.
“We all love Chisato, she is like my own daughter as she is very nice helpful and not afraid to asked questions or help with her school work. I would love to have her back if she decides to come back but she told me she is going back to school in Japan. I would love another Japanese female student fort next one. Chisato told me that she enjoyed the holidays very much specially Christmas.”
“We had a fantastic time with our boys and loved each day with them! Summer stay was more fun as we could have more outdoor activities with them. But they enjoyed sledding and building a snowman on their 2 snow days. We would love to do this again.”