When is the Dog Deductible?
Telling the IRS that your client's dog ate their return won’t get them off the hook for paying 2006 federal income taxes, due April 17 this year. And even though she depends on your client for all of her support, you are really asking for trouble if you try to claim the pooch as a dependent says the National Association of Enrolled Agents (NAEA). Nevertheless, love and loyalty may not be all the benefits your client can get from owning their dog—in the right circumstances, they may be eligible for some dog-related tax deductions, as well.
It makes sense that the costs of buying, training, and maintaining a guide dog or other animal to assist a visually-impaired or hearing-impaired person, or a person with other physical disabilities, is a valid medical deduction. But most people wouldn’t guess that it’s sometimes allowable to deduct their pup’s moving expenses! If your client is moving for a job, the cost of moving their personal belongings, including a dog, cat or other pet, may be deductible.
What about those animals that provide a real service to businesses? There is precedent for writing off pet food when the animal in question is fending off unwanted rodents in order to make a place of business safer for customers. And, expenses relating to guard dogs have been successfully claimed as deductions. Tax experts maintain that the IRS is more likely to accept these claims if the dog is of one of those intimidating breeds that is most successful in frightening off crooks and vandals (no Chihuahuas need apply) and it’s important that the dog is guarding inventory, such as cars at a dealership. Not unlike that home office that may allow you to deduct only a portion of certain total home expenses, only expenses relating to the dog in proportion to the total time he or she spends guarding the business may be deducted. The purchase price of the dog itself may not be deducted. However, in appropriate cases the value of the dog may be depreciated over its expected lifespan as determined by a local breeder.
What about animal adoption? The adoption fee paid when adopting a dog from a rescue group, even one that is recognized as a 501c non-profit entity, is not deductible. Transactions in which you receive goods and services in exchange for payment seldom are. But, if you throw in an extra donation (i.e., above and beyond the price of obtaining the animal) to support the good works of the rescue organization, this may well qualify as a charitable contribution for which you could rightly claim a tax deduction. Just be sure to get a donation acknowledgement letter or other form of receipt proving that no goods or services were provided in exchange for your donation.
Fans of the annual Westminster Dog Show know that the “canine sport” business is flourishing. Show judges, trainers, and seminar presenters who provide training and education to dog show champion wannabes are just a few of the professionals in this industry who incur dog-related expenses that are legitimate write-offs. Veterinary bills, dog show equipment and vehicles to transport the competitors are all potentially deductible or partially deductible expenses; but, just as no two dogs are exactly alike, neither are two business income tax return situations. A qualified tax professional will tell you that in each of the scenarios described above, specific details must be considered to determine whether or not the deductions are legit. Doggie deductions aren’t seen every day and could possibly trigger an IRS audit.
Bottom line: to avoid winding up in the dog house with the IRS, the NAEA encourages taxpayers to make sure their taxes are prepared by a licensed professional. Enrolled agents are licensed by the US Department of the Treasury and must complete stringent annual continuing education requirements—they stay on top of the constantly changing Tax Code. Meet with an enrolled agent after tax season for advice on moves you can make throughout the year to improve your tax situation. To find an enrolled agent in your area, go to www.naea.org and click on “Find an Enrolled Agent.”