Hi and welcome to Just Answer!
Because your compensation is reported on 1099-misc form - you are considered self-employed contractor - and report all your income and expenses as if you are running your own business.
There are some advantages and disadvantages of such situation. Th e main advantage is that you may directly deduct all qualified business related expenses and only your net business income will be taxable.
The disadvantage of such situation is that you are responsible for both income and employment taxes - both are based on your net business income.
You will report your gross income and expenses on the schedule C - www.irs.gov/pub/irs-pdf/f1040sc.pdf
You need to report the total amount you receive on schedule C, line 1.
Please take a look at the schedule C - lines 8-27 - these are your expenses - you need divide them by these categories and calculate your net business income on the schedule C and it will be reported on the form 1040 line 12.
If her net business income is above $400 - there will be self-employment taxes - calculated on the schedule SE. You do need to attach schedule C and schedule SE - www.irs.gov/pub/irs-pdf/f1040sse.pdf to your tax return.
Self-employment taxes from schedule SE will go to the form 1040 line 56 - http://www.irs.gov/pub/irs-pdf/f1040.pdf also - you will deduct half of self-employment taxes on the line 27.
This publication might be very helpful - www.irs.gov/pub/irs-pdf/p334.pdf
Among other expenses - you may deduct expenses for business use of the home - a part of your home must be used regularly and exclusively as one of the following:
- The principal place of business for your trade or business
- The place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or
- A separate structure used in connection with your trade or business that is not attached to your home
When the exclusive-use requirement applies, you cannot deduct business expenses for any part of your home that you use for both personal and business purposes. Further, under the principal-place-of-business test, you must determine that your home is the principal place of your trade or business after considering where your most important activities are performed and most of your time is spent, in order to deduct expenses for the business use of your home.
When figuring the amount you can deduct for the business use of your home, you can use the entire amount of expenses attributable solely to the portion of the home used in your business. The amount you can deduct for expenses attributable to the whole house depends on the percentage of your home used for business. To figure this percentage, you may divide the number of square feet used for business by the total square feet in your home. Or, if the rooms are approximately the same size, divide the number of rooms used for business by the total number of rooms in your home. You figure the business portion of your expenses by applying this percentage to the total of each expense. If you are a qualified day-care provider who does not use any area exclusively for day care, your business portion is further limited by the ratio of the number of hours the area is used exclusively for business to the total number of hours the portion was available for any use.
use Form 8829 to figure your business-use-of-the-home deductions and.
Publication 587 has detailed information on rules for the business use of your home - www.irs.gov/pub/irs-pdf/p587.pdf
If you are eligible to deduct home office expenses - all your travel between two work locations are considered as business related (not simply commuting) and may be deducted based on number of miles driven - for allowed standard mileage rate - see here - http://www.irs.gov/taxpros/article/0,,id=156624,00.html
January 1 - June 30, 2011 - 51 cents per mile
July 1 - December 31, 2011 - 55.5 cents per mile
Let me know if you need any help or clarification.