Alexandra is a veterinarian employed by Fast Vet Services. Susan is a self-employed veterinarian. During the current year, Alexandra and Susan have the same amounts of income and deductions. Why might a deductible expense paid by Susan affect her taxable income differently from the payment of the same expense by Alexandra?
Because Susan is self-employed, her vet practice constitutes a trade or business. Therefore, all of her veterinary expenses are deductible for adjusted gross income. As an employee, Alexandra is also considered to be in a trade or business. However, the unreimbursed expenses of an employee are deducted as miscellaneous itemized deductions. Thus, Susan always gets the full benefit of the deduction, while Alexandra only benefits if she itemizes her deductions and then only to the extent that her unreimbursed business expenses exceed 2% of her adjusted gross income.
