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