This is a correction to a message I submitted last night (which hasn't been published yet). Please delete the original message and use this one instead.
Following her graduation from college, my daughter worked in Argentina for four months on a research project for Cornell. For this assignment she was not hired as an employee but was paid an up-front "stipend" of $4500 and told it would have to cover all her expenses other than airfare. Her agreement with the school was that any money left over from the $4500 she could keep as income. She proceeded to incur approximately $3500 in expenses (food, lodging, supplies, etc.), which left her with a net income of approximately $1000. She received a 1099-MISC from the school showing $4500 of "other income" (box 3). Based on what I have learned, it seems she needs to fill out Schedule C to report her expenses and to put the $1000 of net income on form
1040. She also would need to pay self-employment tax. That's all fine. But in reading the instructions for schedule C, I see that as an alternative to reporting actual meal and incidental expenses, she can elect to report these expenses using a per diem rate that is published by the State Dept. While the normal per diem rate for meals and incidentals in the US is around $39 per day, the per diem rate for Argentina is listed as $79 per day. If my daughter uses this per diem rate rather than her actual meal and incidental expense (even reducing the per diem by 50%, as required), she will end up with a net loss of about $700 rather than income of $1000. That's because her actual daily meal expense was well below the per diem rate (she bought and cooked her own food in the apartment where she stayed). Can she really legitimately do this, or is there something in the code I am missing? I don't see anything that says you can't use the per diem rate if turns out to be much higher than actual expense. If she does do this, can she report a loss on the 1040 or does she get to carry it over or does the loss just get ignored?