The amount in box 7 of my 1099 includes both fees for services and reimbursements. It's my understanding that this is OK, and that I should just list out the expenses for which reimbursements were received, so that I don't end up paying self-employment tax on that portion of the compensation.

My question is this: the amount includes a reimbursement for the computer that I purchased on behalf of and use for the benefit of the client (but which stays in my possession) in 2006. I deducted the expense of that computer on my 2006 return. In 2007, my client finally reimbursed me for a portion of the purchase price of the computer, and included this money as part of my total 2007 1099 compensation.

Since I already listed the computer as an expense in 2006, can I list it as an expense again to balance out the amount the client gave me for it in 2007? Or do I now have to treat the amount as income on which I may be taxed?

Thanks for any advice on this!

You will report entire amount as income on schedule C. Then on C, you will deduct all your expenses. On the net income you will pay SE tax.

How you will treat the 1099-Misc income, read: Your U.S. Tax Return: W2 or 1099: Employee or Independent Contractor. (http://taxipay.blogspot.com/2008/03/w2-or-1099-employee-or-independent.html)