When I enter my Legal Zoom fee of $399 it only reduces the amount owed by $85.00. This is a direct Business Expense should it not deduct the full $339?

TurboTax does deduct the full $399 but when you enter an expense, it does not reduce your tax amount (liability) dollar for dollar. 

• The rate of tax at the federal level is graduated; that is, the tax rates on higher amounts of income are higher than on lower amounts.

That does not make sense.

I just entered a clients 1099 for $4200 Total for Labor and mateial cost

Taxes Due went to $4087.00 

I then added the cost of material expenses to TurboTax under Expenses>Supplies for $1850.00

TurboTax recalculated  to $3685.00 owed

It took $402.00off the amount owed instead of $1850. 

Why am I paying income tax on $1850 of job material costs?

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@firstaidpc wrote:

It took $402.00off the amount owed instead of $1850. 

Why am I paying income tax on $1850 of job material costs?

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The TAX on $1850 is $402.  That is why when you added the $1850 as a deduction, it saved you $402.

You don't really expect your taxes to be decreased by $1850 for $1850 of expenses, do you?  The government isn't paying 100% for your expenses.  You just don't pay TAX on that amount.