I am not sure what you are saying about "deducting from the software". You do not deduct the amount reported on the 1099-MISC on your federal return. You do deduct the amount as an adjustment to income for you Minnesota state tax return, as it is not taxable for Minnesota state tax. Reporting $260 of miscellaneous income will not result in your owing $279 in federal tax. If TurboTax is saying you owe $279 in federal tax, then it is the result of something other than $260 of Miscellaneous Income. @Jared_johnson34
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