You've helped me determine that my fellowship will qualify for this deduction. However, I am wondering if I can claim a portion of the expenses on schedule c since 50% of my fellowship income is obtained as an independent contractor. Technically, it is from moonlighting at the ER, but this work has always been an expected part of the fellowship position. Thanks

Zip Code: 94030

Boy, that's a tough one.

If you were to work only as an employee for that year, you would definitely claim all the expenses as a miscellaneous itemized deduction. If you were only to work as an independent contractor, you'd claim all these expenses directly against your independent contractor income.

But what should you do if you earn both types of income during the year?

The most conservative way to go would be to claim all these expenses as a miscellaneous itemized deduction on the Schedule A. But you'll save more taxes by claiming more of these expenses directly against your independent contractor income on the Schedule C.

I would say that if you come up with a fair way to allocate the time you spend at each job during the year, and allocate the expenses based on that calculation, then that should most likely be okay in the eyes of the IRS. You might want to get a second opinion from a professional tax preparer on this one, however.

Zip Code: 01801

In our practice, we developed a spreadsheet that codes expenses as either Schedule C, Itemized or "Mixed" (they benefit the taxpayer in both areas).

Where expenses are Mixed, meaning they benefit both your role as an employee and as an independent contractor, the spreadsheet allocates the costs based on the gross receipts as an employee and as an independent contractor.

It was pretty easy to construct, but even if you can't make your own spreadsheet, I hope you understand the concept. This is consistent with our reading of the way the IRS would look at these expenses. There is always some judgement required in deciding where to put these expenses, so use common sense and you should be ok.

Gary

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Replying to:

Boy, that's a tough one.

If you were to work only as an employee for that year, you would definitely claim all the expenses as a miscellaneous itemized deduction. If you were only to work as an independent contractor, you'd claim all these expenses directly against your independent contractor income.

But what should you do if you earn both types of income during the year?

The most conservative way to go would be to claim all these expenses as a miscellaneous itemized deduction on the Schedule A. But you'll save more taxes by claiming more of these expenses directly against your independent contractor income on the Schedule C.

I would say that if you come up with a fair way to allocate the time you spend at each job during the year, and allocate the expenses based on that calculation, then that should most likely be okay in the eyes of the IRS. You might want to get a second opinion from a professional tax preparer on this one, however.

Zip Code: 43232