REGARDING EXPENSES

Q: I photograph for several magazines. One magazine's 1099 form reports not only the fees they paid me during the year in question, but also includes sums that compensated me for out-of-pocket expenses. Of course this doesn't agree with my records: I don't count those pay outs as expenses, since I know that I'm going to get them back -- and I don't count expense checks as income, either; it's just a wash.

Suppose I receive a 1099 form that shows $2587.53 of income, which actually includes a $2500 payment for a series of photos and $87.53 reimbursement for telephone calls. It doesn't make sense that I'd have to include the latter amount in totaling my income for line 1 on Schedule C, since it wasn't income.

A: Contrary to what many photographers (and other self-employed people) mistakenly believe, it's not "just a wash." You should make sure your return reflects the consistency that will keep the IRS computers in a calm, unagitated state.

You should include in your line 1 total the full amount shown by the magazine, $2587.53. Then, as with the agent's commission, count the $87.53 among your deductible business expenses, since you should not be paying taxes on it.