The first thing you need to know is that you can’t claim your dog as a dependent on your tax return. Never! Don’t even think about it. There are no special rules for St. Bernard’s or Great Danes. It doesn’t matter how much your dog depends on you or that he’s a regular member of the family. A dog can never be claimed as a dependent on your U.S. income tax return.
There are two places you can claim a dog on a tax return, as a medical expense, such as a service dog, or as a business expense. This post is about claiming your dog as a business expense. If you’re looking for information on dogs as a medical expense, then you need to check my other post http://robergtaxsolutions.com/2011/03/claiming-your-dog-on-your-tax-return-part-1/
If you intend to claim your dog as a business expense, you have to remember the two most important words for business expenses: regular and necessary. Is the dog a regular and necessary expense for your business? For example: my dog likes to help me when I work from my home office. She guards my door and prevents my college age children from coming into the room to bother me (i.e. ask for money.) Her favorite part of her job is barking at the IRS agents whenever I’m on the phone. How she can tell I’m talking to an IRS agent instead of a client amazes me. As you might have guessed, I cannot claim my dog as a business expense. Her service to my company is neither regular, nor necessary. (No matter how much I get a kick out her barking at IRS agents.)
Real working dogs, on the other hand, are a legitimate business expense. Sheep herders, guard dogs, bomb sniffers and rescue dogs all are legitimate working dogs. My dog neighbor used to star in the dog program at Busch Gardens—once again, a legitimate working dog, although now he’s retired.
Breeding dogs can be a little trickier. A real dog breeder is a legitimate business. Where it gets a little tricky is that fine line between dog breeding as a hobby versus breeding as a business. For example, if you’re treating your dogs as “livestock” they have a depreciation rate of 7 years. If you buy a full grown bitch with the intent to breed her, you may claim the purchase price as a section 179 deduction (that means you can write off the whole purchase price.) If you purchase a puppy—with the intent of breeding it when it grows up, you can’t write off the whole cost immediately. The best you’ll be able to do is to claim depreciation.
I once was consulted on a “dog breeder” case. The woman had purchased two “designer puppies” for $2,000 each with the purpose of mating them together and selling the puppies. She wanted to write off the entire $4,000. The woman had no experience with breeding dogs, no experience running any type of a business before, and didn’t seem to have a clue about raising dogs in general. First, the IRS is clear about not completely writing off “immature” animals so a total write off was out of the question. Additionally, because there was no income and the client just wasn’t meeting any of the business qualifications, claiming any kind of deduction would be problematic. I recommended holding off on claiming any deduction. If the business truly panned out, she could depreciate the dogs when (and if) they were put into service. Just because the puppies you buy are expensive, they don’t necessarily qualify as a business expense.
Once again, you have to make sure that if you are claiming a dog as a business expense, you really need to make sure you’re on the up and up. A dog on your return is going to be a red flag so you start out with the assumption that you will be audited. Document everything. Have receipts for your expenses, and proof that your dog is a necessary and regular expense for your business. Dot your i’s and cross your t’s and you’ll be okay.
Note: We try to answer all the questions that come to us but please be patient. It’s our busy season right now. We may not get to your post until the weekend. When you make a post and use the capcha code, it won’t immediately show up. You see, for every normal person like you that posts, there’s about three advertisements for things your mother wouldn’t approve of. (We try to keep this a G rated website.) We have to edit those out. If you need an answer right away, here are some links that might help:
How to find free tax preparers: http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers
How to find your local IRS office: http://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1