Say some of your income is by W-2 (taxes withheld), and part is by 1099-MISC (no taxes withheld).
If you put all of the 1099 money into an IRA, then you don't have to pay taxes on it at all, correct? (Well, except when you take it out, as per the regular IRA rules.) All this money would be working towards future savings and lowering your yearly taxes. Am I getting that right?
Practically speaking, one would only put part of the 1099 into the IRA because you need the rest for your normal expenses. But "sheltering" your 1099 earnings this way seems so obvious that I'm surprised I've never heard of it before. Is there something I'm missing?
UPDATE: Basically the answer is: getting money on 1099 will raise your year-end taxes (like all money you earn). Putting some of that money into the IRA will lower your year-end taxes. I specifically wondered how much you would have to put in to offset the increase, but that depends on a number of factors (mainly, how much you earn all year, and whether all this raising and lowering changes the tax bracket you're in.)