You love your pet. He's like your child after all. But the IRS doesn't quite see it that way.
The IRS takes the position that the money you spend on Fido or Fluffy is generally a personal expense. Your pet gives you pleasure like that latte you bought on your way to work this morning. But just like your cup of coffee isn't tax deductible, neither is your pet.
But, there are a few loopholes. You might be able to deduct costs related to your pet if he serves another purpose in addition to accepting your undying devotion — and if you can prove it. If you're a pet owner, here are some tax breaks you might be missing out on.
1. Guard Dogs
Generally, it's difficult to claim your pet as a business expense. But if your pet guards your business location, you might be able to deduct the costs of keeping him fed and healthy.
“The IRS has taken a fairly hard-nosed stance when it comes to deducting the cost of animals as business expenses — and the courts have agreed with them,” said Micah Fraim, a CPA in Roanoke, Va., and author of "The Little Big Small Business Book." "But one area that has been consistently upheld is when you own a guard dog. In fact, in Raleigh Cox and Brenda J. Cox v. Commissioner, the IRS didn’t even attempt to disallow deductions for a guard dog. The business was in a bad part of town, and the IRS felt that it was a legitimate expense."
But, you might have a hard time convincing the IRS that your Yorkie or teacup Chihuahua serves in this capacity. "Size and breed do matter here," said Fraim. "A mastiff, pit bull or other large breed would be believable. A Maltese or Chihuahua would not.”
Kristina Grasso, master tax advisor with H&R Block, said you might be able to deduct guard dog-related expenses — dog food, training and veterinary bills — on Schedule C if he guards your work premise. So, make sure you "keep records about the dog's hours and work-related purpose," she said.
2. Cats Used for Pest Control
You might also be able to deduct costs associated with your kitty who keeps your business property free of mice, rats and other vermin. "Cats or other animals that are kept primarily for pest control are also deductible," said Fraim.
Fraim noted that in Samuel T. Seawright, et ux. v. Commissioner, the petitioners were entitled to a $300 business expense deduction for cat food. "The couple owned a junkyard and put the food out to attract feral cats," he said. "The court upheld the deduction as cats were there 'to deter snakes and rats.'"
Remember that if you're trying to claim your working pets — including guard dogs — to deduct business expenses, you'll likely have to convince the IRS that keeping the animal is "ordinary and necessary." In other words, "hiring" a cat or dog must be "common and accepted in your trade or business." And, it must be "helpful and appropriate."
3. Offsetting Hobby Income
If you make money showing your pet — which the IRS might consider hobby income — you may be able to claim a tax break for related expenses.
"Pets used in hobbies, such as show dogs, may be deductible," said Grasso. "If the dog wins prize money in the endeavor, then the expenses incurred to train, show, etc., are deductible up to the winnings."
"If you receive hobby income, it's not uncommon to receive a 1099 at the end of the year and for you to be required to include income on your tax return," added Fraim. "You can also deduct related expenses up to the amount of income earned on Schedule A of the 1040."
But the process to deduct these expenses can get tricky. "You must itemize to take the deduction at all, which many taxpayers do not," said Fraim. And, some restrictions apply that might not result in substantial tax savings.
"These deductions are subject to a threshold of 2 percent of your adjusted gross income or AGI," said Fraim. "For easy math, let's say you made $1,000 from pet shows, had $3,000 in expenses and your AGI is $100,000 ... You can deduct $1,000 of expenses — not the full $3,000 — because you're only allowed to take a deduction up to the amount of income earned. But even then, you don't actually get any tax break."
That $1,000 is less than 2 percent of your AGI, so you actually lose $2,000 from the pet shows — and you still have to pay taxes on the $1,000 in income you earned.
"Two percent of a lower AGI is an easier threshold to execute," said Grasso. So, the lower your AGI, the more likely it becomes that this tax deduction for hobby-related expenses will result in more tax savings.
4. Foster Pet Parent Deductions
If you foster animals, you might be able to take advantage of tax benefits for charitable contributions.
"Any expenses you incur caring for foster animals from a qualified nonprofit are deductible on Schedule A as charitable donations," said Fraim. However, these must be unreimbursed expenses if you want to get the deduction, added Grasso.
And, the expenses should go toward caring for these animals, such as pet food, supplies and veterinary bills. "Thankfully, most of these organizations provide the medical care and food for these animals," said Fraim. "But any expenses paid out of pocket that are necessary for their care that are not provided for or reimbursed are deductible."
What about if you volunteer at a shelter or rescue organization? "Keep track of mileage for trips made to further the organization's work because this is deductible at 14 cents per mile," said Grasso.
When it comes to fostering animals from municipal shelters, both Fraim and Grasso said to be careful. According to Fraim, most are not 501(c)(3)s and do not qualify for these types of tax deductions — unless they're somehow tied to a charity.
"Some private agencies take on responsibility for animal control (law enforcement) functions or handle sheltering for a municipal animal control department by contracting with one or more municipalities," said Grasso. "Thus, if the private agency is set up as a nonprofit 501(c)(3) organization, the volunteers should qualify for any applicable deductions."
However, "people should foster animals because it increases the animal's chances of being placed in permanent, forever homes and the animals get needed socialization — not because it potentially gets them a tax deduction," she added.
5. Guide Dogs and Service Animals
Medical expenses are also tax deductible if you itemize. Let's say your pet helps you in a health-related capacity. If so, you'll likely get a tax break.
You can include the costs of purchasing and training guide dogs for the blind or hearing impaired. This also includes veterinary, food and grooming expenses. Pets are also used in therapy, such as in the treatment of post-traumatic stress disorder. These animals are covered as well, said Fraim and Grasso.
"Make sure to get a prescription from your doctor — or some other documentation that shows your medical necessity — prior to obtaining any pet that you claim," said Grasso. Otherwise, "the IRS may conclude that your pet does not meet the requirements to deduct these pet expenses. Keep any documentation that shows how the animal was specially trained to help you with your medical condition, too."
Also, the IRS doesn't consider Fido to be a therapy dog unless he's been trained and certified. "The animal must be trained or certified as treatment for a diagnosed illness or condition for the IRS to approve the deduction," added Grasso.
You don't actually have to use the dog yourself to get a deduction, though. If you raise dogs for a charitable organization such as Guide Dogs for the Blind, costs associated with providing for them qualify as a charitable deduction as well.
Taking advantage of these types of medical and charitable deductions related to animals can help you save a lot of money on your taxes this year.
6. Moving Expenses
The IRS won't let you claim your pet as a dependent — but it's not so heartless as to make you leave him behind if you're forced to move due to work.
You can deduct costs associated with transferring your pet to your new home. But there are some requirements you have to follow, according to the IRS:
- Your move must be closely related to the start of your work
- You have to pass the distance test
- You have to pass the time test
For example, your new workplace must be at least 50 miles farther from your old home than your old workplace was. So, if your old workplace was only 10 miles away from your old home, your new workplace must be at least 60 miles from your old home. And if you're an employee, you must work full time for 39 weeks or more during the first year after you relocate.
Once you satisfy the IRS requirements, you can deduct the cost of shipping your household pets to your new home, along with other move-related expenses.