I am an employed physician who also has a small amount of self-employed, "moonlighting" income for which I receive a 1099 form.

I pay all of my own malpractice, CME, and licensing fees with after-tax dollars.

To what extent can I deduct these expenses on Schedule C where I report the self-employment income? The malpractice insurance, for example, is needed for both my employed postition and my "moonlighting" activities.

If these expenses are fully reportable on Schedule C, what if the expenses vastly exceed the income?

Finally, if I have a SEP for my self-employment income, is the amount I can contribute based on the 1099 income or the net amount after all the deductions?

Thanks for your help.

Zip Code: sckaplan@yahoo.com

If you earn money as an independent contractor, you can deduct expenses directly against that income. Professional expenses not claimed against your moontlighting income on a Schedule C can be claimed as a miscellaneous itemized deduction on the Schedule A.

Miscellaneous itemized deductions are only allowable to the extent they exceed 2% of your AGI, and are not allowable when calculating the Alternative Minimum Tax (AMT). Plus, you must itemize to benefit from claiming your professional expenses as a miscellaneous itemized deduction.

So where should you claim your expenses? It depends on a lot of factors. We generally don't want to see our clients claim a loss on their moonlighting Schedule C's. But why not try to wipe out that income with your professional expenses?

With respect to your SEP, it's based on your "net self-employment income", which means after your expenses. So if you wipe out your 1099-Misc income, you won't be entitled to contribute to a SEP this year.

Zip Code: cpa@mdtaxes.com