Question

F is self-employed registered nurse and works occasionally for a nursing home. G is a registered nurse employed by a nursing home. Their income, exemptions, credits, etc. are identical. Explain why a deductible expense, although paid in the same amount by both, may cause F and G to have differing tax liabilities.

Answer 1

F is a self employed nurse and G is a registered nurse as described by the question.

All the income, exemptions, deductible expenses etc are same for both but there is a difference in tax liabilities of both. This is because a self employed is allowed to deduct expenses on home office, travels, meals, telephone etc.from earning by IRS but a registered employee is not eligible to deduct these deductibles from income.

So this allowance of deductibles is cause of difference in tax liabilities of F and G whereas the income and exemptions of both are same.

So self employed can take of deduction of deductible expenses from income but employee can not take the deduction of deductible expenses from income and it will result more taxable income in hands of employee rather than self employed and will cause of difference in their tax liabilities.