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A guide to doing taxes with your pet in mind

Uncle Sam-approved animal-related tax deductions

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Seeing more "I Love my Cat/Dog/Ferret" bumper stickers on the road lately? It's not your imagination.

 According to the 2017-2018 National Pet Owners Survey conducted by the American Pet Products Association, 68 percent of U.S. households, or about 85 million families, own a pet. In contrast, the 2012 United States Census reported fewer than 34 million families living with children under age 18 in the household. Yet, there are few legal statutes that give our furry friends the same protections and benefits reserved for the taxpaying parents of human children.

 In 2009, Michigan State Representative Thaddeus McCotter proposed a bill called the "Humanity and Pets Partnered Through the Years" (or HAPPY) Act that would allow tax deductions for pets. The annual deduction would cover up to $3,500 of qualified pet care expenses. Despite endorsements by groups such as the American Veterinary Medical Association, McCotter's legislation went nowhere, but if you're a pet owner who's spent thousands of dollars for emergency surgery for your beloved beastie, you might think he was on to something.

 "The bad news is that the [Internal Revenue Service] says pets are property, not people," says Joe Geeck, certified public accountant at Van Dam & Geeck. You can't claim animals as dependents or collect the child care tax credit. Geeck says one of the few deductions available to pet owners is for moving costs associated with crating and shipping Fido or Fifi to a new home — if the move is work-related. Since you can deduct the cost of relocating your furniture, cookware and ceramic hippo collection, you also can deduct the expenses of moving your pet.

 Geeck says there are a few classes of animals.

 "There are pets, or companion animals, for which typically there aren't any deductions," he says. "There are animals used in hobbies, and animals used for business or working-class pets, such as hunting dogs or horses that draw carriages. And there's a middle category of pets used for medical reasons." There are some eligible deductions for furbutts with day jobs, but the value of those animals depreciates over time, as with any business asset.

» Hobby animals

You paint and sell pictures of your gorgeously green pet iguana. You enter your tabby or your terrier in an animal show and you take home a cash prize for prettiest pet. According to the IRS, these are hobbies, and you should claim that money as income on your tax return. However, you also can claim the expenses associated with your hobby, such as paints and canvases, grooming, travel and entry fees, to offset that income.

 "With a hobby, you get to deduct your expenses, but (only) to the extent that you receive income from it," Geeck says. A hobby can't result in a financial loss on your return.

» Business animals

Working-class animals often fetch a business deduction, and the enterprise can generate a loss if it's a legitimate business.

 For example, if you own a hunting lodge that supplies trained tracking and retrieving dogs and those dogs are cared for and live on the property year-round, it's likely the IRS will consider that a business. If you own a Labrador retriever that you loan out to your uncle for hunting once in a while, that's a hobby, and you should claim deductions accordingly.

 There are tax deductions for the care (but not the purchase) of animals that help you conduct business. The costs of keeping or attracting cats to control rodents and pests on a commercial farm could be a business deduction, as long as the cats stay on the premises (and you're not just bringing your pet Persian from home). Guard dogs on business property are another possible deduction, but there are caveats. If the dog doesn't permanently reside on the property or you can't document how much time the dog spends working, you could run into tax trouble.

 "If you're leasing a guard dog from a security company, that's a pretty clear deduction," Geeck says. "If you just happen to have a dog that's ... protecting your personal assets and not a business, it's not deductible."

 Also, if your business is dogs or cats — say, a pet walking or grooming service — animal-related expenses such as leashes, shampoos and even poop bags are deductible.

» Service animals

IRS Publication 502 says taxpayers can include in medical expenses the costs of buying, training and maintaining a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities. This includes costs such as food, grooming and veterinary care. Obtaining a letter from a physician that shows the medical necessity of a service animal will help back up the claim come tax time.

» Charitable deductions

Pet adoption fees are not deductible, but any money donated in excess of that fee can be deducted as a charitable donation, as long as the organization is recognized by the IRS as a 501 (c) (3) nonprofit. Be sure to request a receipt that clearly distinguishes between the adoption costs and the donation.

 Expenses incurred while fostering or rehabilitating an animal are eligible for a deduction, as long as it's for a recognized nonprofit. The 2011 Van Dusen vs. Commissioner ruling in the 9th U.S. Circuit Court of Appeals held that a woman's charitable deduction on her tax return for the care of nearly 80 (eighty!) cats in her home was a valid claim, since it was on behalf of a recognized nonprofit. While some animal charities wouldn't find these conditions sanitary or appropriate, legally, it's a legitimate deduction.

» Don't mess with the IRS ...

"If you want to make sure that something qualifies (as a deduction)," Geeck says, "the best thing to do is to ask your accountant." He says taking an unreasonable stance with the IRS or filing a false claim — even unknowingly — can result in underpayment of taxes and huge fines.

 "I've seen people try to claim veterinary bills as medical expenses on their taxes," he says. "I've seen people try to take unreasonable positions on their taxes, like, 'My Chihuahua is my guard dog because it makes a lot of noise and it's protecting my home,' and try to claim that as a business deduction."

 The fine for inaccurate returns is $5,000, plus underpayment and inaccuracy penalties (anywhere from 20 to 75 percent of the corrected tax amount) and interest accrued for adjustments. That fine can increase to $10,000 based on the severity of the return's inaccuracy, in addition to the other penalties.

 "Intentional disregard for the law can be extremely expensive," Geeck says. "It can cost you tens of thousands of dollars, or even include criminal charges. Just don't do it."

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