Claiming Your Dog on Your Tax Return: Part 2

March 11, 2011 by
Filed under: Small Business 
Legitimate working dogs can be a business deduction

Photo by nicephotog

 

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.

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Comments

83 Comments on Claiming Your Dog on Your Tax Return: Part 2

  1. Nadi Spencer on Wed, 23rd Mar 2011 9:45 pm
  2. What about an artist that photographs her dogs for greeting cards. I don’t make much money at it, but I do sell the cards, and I am an artist by profession.

  3. Jan Roberg on Thu, 24th Mar 2011 1:42 am
  4. That’s a good question Nadi. You’re kind of in the “borderline” area. Yes, you do use your dogs in your work but it’s not the main focus of your work. (At least I’m guessing that it’s not the main focus of your work.)

    Without looking at your actual figures, it’s kind of hard to gauge, but I would guess that it’s probably reasonable to you to claim grooming expenses for the dogs before photographing them, but not necessarily all of their expenses. Also, I’d be sure to claim the paraphanalia that goes with the photos. For example, if you’re posing the dog with a toy or something, the toy would be a business expense.

    To kind of give you a guideline, if your income from the cards is only $100 and the cost of owning the dogs is $5000, then that’s going to be too much of a reach. On the other hand, if you’re selling $5,000 worth of cards then you could probably justify all of your dog expenses.

  5. C.C. on Fri, 15th Apr 2011 4:08 pm
  6. What about taking a deduction for my dog breeding business (been in it for 6 years) in 2010, when I didn’t breed the dogs in 2010? I took a break from breeding due to the economy, but there are still expenses related to keep the two breeding dogs healthy.

  7. Jan Roberg on Sun, 17th Apr 2011 12:05 am
  8. C.C. that’s a really good question. You’ve been in the business for 6 years and you took a bread from breeding in 2010. I’m thinking, that if you intend to breed them again, then it makes sense to still claim them. 1. You have a history of breeding them. 2. You intend to continue breeding them. And 3. I’m thinking that it probably makes sense for your bitch to take a year off for her health. I’ll be honest, I don’t really know if that’s true or not, but I certainly would use that argument if you got audited.

    So I guess it’s really a matter of what you’re thinking about for the future. If you were shutting down, I wouldn’t try to claim it, but if you’re continuing the business, then I’d say your expenses would be legit.

    Have you ever had a profit from breeding the dogs? That would certainly give you a stronger case. If you’ve got six years of losses, that would be a little more difficult to justify. (Horses are allowed 7 years of continuous losses but dogs don’t get the same benefit.)

    Sorry, you ask a question and I come back with a bunch more. Bottom line: if you’ve shown some profits in the past and plan to breed again, then I’d claim the expense. No profits or no plan–don’t claim.

  9. Jan Roberg on Sun, 17th Apr 2011 12:06 am
  10. Took a break from breeding, not bread. I can’t spell. Sorry.

  11. Brian on Fri, 16th Sep 2011 5:12 am
  12. What if i am planning to expand my breeding program and i have currently been doing this 3 years producing two litters.. How much should i profit before i consider claiming the business on my taxes? And also do i need to have reciepts for my full bred bitches and my sire to claim them? My pups sell for between $400 and $600 dollars and we have a deposit list at all times waiting for litters.. also a website. Just need a point in the right direction of how to keep my program on the up and up!

  13. Jan Roberg on Sat, 17th Sep 2011 5:19 am
  14. Hi Brian,
    I think you’re asked a really good question. Actually, it’s a great question: how much should I profit before I claim it as a business? It’s really important to know. Here’s my answer: you don’t necessarily need to show a profit to go from being a hobby to being a business. Many businesses show a loss in their first, second, and often third years. Ideally, you want to work towards being profitable, but a loss is certainly acceptable in the early years.
    So what separates you from being just a hobby breeder? In your case, I’d say it’s intent for one. You’ve been breeding two litters a year, your planning to expand, and you’ve started a website. Those are clearly signs of someone who’s “in business” versus just being a hobby.
    Now here I’m just guessing, but I’d bet a box of Milkbones on it…I bet you know a lot about dogs too. That’s another key ingredient to being a real business.
    So why be a business instead of a hobby? For one thing, you can use your losses to offset your other income, that’s a big plus.
    So I’d call you a business. You’ll want to make sure you’re following all your local ordinances. (For example: I’m located in the city of Maryland Heights, so I have to have a Maryland Heights business license even though my address says Saint Louis.) It’s the little things that will trip you up, the big ones aren’t hard. You’ll be a sole proprietor, you’ll prepare a form Schedule C with your regular tax return. I’d prefer that you keep a separate checking account for the business (but there’s no law that says you have to.)
    I’ve got some other posts about small business basics and unusual tax issues for small businesses that might help you. I think you’re on the right track though.

  15. KellyRae on Mon, 30th Jan 2012 5:36 pm
  16. We are trying to figure out if we can claim our two personal dogs that “work” at our doggie daycare and training facility. They both have specific “jobs” at the daycare, for example they meet new dogs or show how to perform proper behaviors during training classes. Specifically we were wondering if we can claim their medical expenses. For example, our little girl dog got nipped in the ear and required medical attention. Is this something we can claim?

  17. Jan Roberg on Mon, 30th Jan 2012 6:15 pm
  18. Hi KellyRae,
    My gut reaction is that it should be yes. They work at the daycare and they are used for your training classes–I’m guessing that you’re filing a Schedule C and I would count them as a business expense.–Especially–because the little girl dog got bit at work–that would be a business expense in my book.

    Remember, claiming dog expenses is always a risk–but I think you’ve got a legitimate claim here. I always like to sock the extra money saved by claiming something risky in the bank. That way, if you do have a problem–you’re covered. But–I also think you’ve got a legitimate claim.

    You can always divide–pet time versus work time as well. For example–the injury was definitely job related, but if you take your dog on vacation–well the costs for that would not be a business expense. You get the picture.

    As you go through your pet expenses, what would you pay for normally for your pet versus what additional costs do you incur because your dog is a working dog. Anything that you can honestly say is “for work” I would include that as a business expense.

  19. Tony on Tue, 7th Feb 2012 4:18 pm
  20. I’m interested in becoming a maltese breeder. I have read up on the breed, finace has owned the breed for years, and I am now ready to buy a female to get started. I want to start with a puppy then, by a male early next year. Reason being the female has to be older than the male for mating purposes. So the first year I won’t be able to breed, will I still be able to write off a portion of the expense for the female (purchase price, vet bill, etc.)? I only plan on being a low rate breeder….1-2 liters a year to start and no more than 2 breeding females later on. Is this ok? Also should I register as a sole proprieter (or something similar) or as a LCC?

  21. Admin Roberg on Thu, 9th Feb 2012 2:42 am
  22. Hi Tony,
    I would be a little conservative here. I would keep all the records of your purchase and vet bills etc. but I wouldn’t claim them on your tax return until you reach a point where you actually have income to write off. This covers your behind in two ways. 1. You won’t have tried writing off a hobby as a business expense (very frowned upon by the IRS, and 2. You’ll have all the information you need to write off your “start up” costs once you produce some income from the puppies.
    I wouldn’t go the an LLC designation unless and until you actually start selling dogs. And another caveat–make sure you check your neighborhood licensing laws before you declare your business. (I know someone who had a little problem with that.) Good luck. (And maybe you could post a picture of the puppy when you get her?)

  23. Tony on Fri, 10th Feb 2012 1:08 pm
  24. So just so i understand a little better. I can have expenses in 2012 but not claim them until 2013? And since I do plan on selling the puppies why would it harm me to not wait to file as an LLC. As far as the taxes for the LLC, they would just be filed with my individual income tax correct?

    I checked the state and federal licensing requirements and I’m good to go with only one liter per year for state. And subdivision doesn’t have any restrictions, plus they are house dogs so am I overlooking something?

    Thanks for all the words of advise. I’ll post a pic as soon as I get her.

  25. Admin Roberg on Sun, 12th Feb 2012 3:04 pm
  26. Hi Tony,
    Sorry about replying so late. I was working on an audit. What makes me good at audit work is that I pretty much know what the IRS is looking for before they ask the questions. I tend to look at tax returns from an audit point of view (occupational thing.)
    In your case, I’m seeing a $0 income schecule C with expenses. That pulls you out of the “machine” filing and forces a human pair of eyes to look at your return. In many cases, that’s no problem, a first year business almost always has negative net income–and the $0 revenue could be acceptable. But zero revenue is an automatic second look.
    During the second look–the agent will review your expenses. What did you buy for your business? A puppy? If you’re in the business to breed dogs–why didn’t you purchase an adult bitch?
    Let’s say you get past this–next year you’re going to buy another puppy and still have zero revenue. Same process as before but now you’ve got two years of zero revenue with losses for purchasing puppies.
    Next question–how much money do you expect to make raising Maltese puppies? Are you doing this to make money? (Important note: the answer has to be yes.) The danger with claiming a business for your small litter dog breeding is that you’re really close to being a hobby. Being a hobby is fine–you just report your income differently and it’s almost impossible to write off your expenses.
    You’re talking about buying and raising puppies and holding them for over two years before they can breed–so you’re not really going to be a revenue generating business for two years. I call that start up costs because you’re not in business until you’re breeding.
    If you insist of starting an LLC, and filing as a business, then at least you are aware of the IRS risks. I recommend depreciating the dogs on a 7 year depreciation schedule because for IRS purposes, breeding dogs are considered livestock. You won’t find dogs under the agricultural MACRS tables so 7 years is the default lifespan. Depreciating the dogs, because you can’t expense them, gives you more credibility than a Section 179 deduction which would definitely raise flags on a puppy.
    Which is why–if you’ve really got a legitimate business, you’re better off waiting until you’ve got some income to be writing off the expenses against. You can write off $5000 of start up costs in the first year of your business and amortize the rest.
    I know I rattled off a lot of tax geek speak, but you kind of needed the geekier stuff. Bottom line: are you in the business to make money? The answer must be yes. When do you see the revenues starting? When do you see the profits starting? If your case goes to audit–that’s going to be what you’ll need to prover your case.

  27. Amy on Fri, 17th Feb 2012 6:04 pm
  28. I buy greyhound puppies for racing purposes, raise them, train them and then sell them. I’ve been putting them on my depreciation schedule and then take the expenses for raising them on my Schedule C. This year I sold those puppies for a sizable gain and I also have income that is directly for my Schedule C but overall I show a very large loss in my Schedule C because of the work I put into these puppies. So tentatively I’m showing a really big gain on my 4797 and a really big loss (but still $20k less than my total gain) on my Schedule C. My question is whether or not I need to be concerned about self employment tax. Or in other words, am I right to be considering these puppies as appreciable assets?

  29. Admin Roberg on Sun, 19th Feb 2012 2:14 pm
  30. Hey Amy,
    Thanks for giving us the most interesting tax topic to discuss around the water cooler this week.
    Okay here’s the consensus:
    1. for business tax purposes–dogs are basically treated as livestock.
    2. cattle–that are purchased young and later sold for slaughter are treated as inventory.
    3. cattle that are purchased and used on the farm–such as for breeding or milk production are considered to be capital assest.

    You are buying the puppies and raising them and training them to sell for racing purposes, therefore, your dogs are inventory and belong on your schedule C, not your 4797.

    If you kept a dog and actually raced it, that would be a capital asset and you would report the sale of that dog on the 4797.

    I apologize for using the “cattle to slaughter” analogy because I find it really disturbing using that point of reference when talking about puppies (especially greyhounds, I love greyhounds) but that’s the closest IRS reference I could find that would be generally understood.

    Bottom line, the puppies should be considered inventory, not appreciable assets.

  31. Lisa on Thu, 23rd Feb 2012 10:26 pm
  32. We just purchased a breeding pair of Black Mouth Curs. The female is 11 mos and the male is 16 weeks. Because of her heat cycles and his maturity I wouldn’t consider breeding them until the end of 2012–so no puppies until 2013.

    We are new to this and though they were purchased with the intent to breed I do not envision it moving past this breeding pair–perhaps another female in a few years (I have 5 children and my hands are quite full). We do intend to make money–just not as much as a big breeding program (probably a litter per year).

    What are your recommendations for our taxes next year? What are the real expenses that can be deducted/depreciated (purchase price, food, vet, crates, pens, etc…)?

    Thank you.

    ~Lisa

  33. Admin Roberg on Sat, 25th Feb 2012 10:58 pm
  34. Hi Lisa,
    Well the first thing I had to do was go check out a picture of a black mouth cur. (Sorry, I had to delete the link.)
    Awwwwwww. Total cuteness! Plus 5 kids. I can just see your kids running around with the puppies. Too cute!
    Oh wait, you’ve got a tax question. Sorry.
    Anyway. Personally–I like to take the purchase of the dogs and the costs of care before the first litter and save them up and roll them into “start up” costs. Use those start up costs the first year you actually have income.
    Here’s why–When you have a business–the IRS does not like to see $0. in the income column. And with dog breeders, you’ve got the additional problem of dogs also being considered a hobby. So you’ve got a double audit flag. That’s why dog breeders have to be extra careful. If you wait until you actually have income, you lose one of the audit flags. Now you may still show a business loss that first year you sell puppies–a business loss is okay. (Not every year, but for a start up.) But you’ll show revenue and that makes your business legit. If you claim your purchases now, and a year of care, before showing any revenue–then the danger of being labeled a hobby is much greater and you could lose all of your business deductions.

    Anyway, that’s my recommendation. If you ask another accountant–you’ll probably get a different answer. There’s a lot of gray to work with. It’s not like the IRS has a “white paper” for small dog breeders.

    If you do decide to claim your expenses this year, instead of putting them into start up costs from when your litters start to sell–I recommend depreciating your dogs like livestock –MACRS formula for 7 year life (hoping your dogs live more than 7 years–7 is the default for things that aren’t listed.) Don’t claim a section 179 100% expense deduction for the dogs. I just think you’d be screaming “Audit Me!” That’s a headache that a mom with 5 kids and 2 dogs just doesn’t need.

  35. Melody on Sun, 26th Feb 2012 7:03 pm
  36. Over the past 4 years purchased 2 female and 1 male minature dashounds. Last year breed 2 and had 4 puppies keep 1 to replace 1 of the females and sold 3 others for 100 each. this was in my home. How do I go about claiming this income as a bussiness. I want to stay small bussiness thinking about when retire in few years.
    We paid cash for the dogs as pups they are registered. Planning on building a building and kennel this year. Because of paying cash for our dogs then we cant put them on start up cost. Should I wait until 2013 to claim start up.
    Thank you
    Melody

  37. Admin Roberg on Mon, 27th Feb 2012 2:31 am
  38. Hey Melody–
    Just because you paid cash for your dogs doesn’t mean you can’t claim the expense. You must have a receipt–didn’t you get paperwork on the animals back when you got them?
    If not, that’s okay. You can claim the $300 income on a Schedule C or on line 21 of the 1040 for other income. Because of the dollar amount, it won’t affect your taxes either way. (You don’t pay self employment tax on amounts under $400.) Next year when you build your kennel and building–you’ll want to depreciate those expenses and definitely start on a schedule C.
    Congratulations!

  39. Emma Codd on Thu, 1st Mar 2012 5:02 am
  40. Hello,
    Can I claim a dog (purchase and running expenses) as a guard dog for the business address. It will live full time at the house our business rents, which is the office and workshop and storage. It is a Doberman.
    We are about to switch from sole trader to a company if that makes it any more acceptable.
    Thank you!

  41. Admin Roberg on Fri, 2nd Mar 2012 2:58 am
  42. Hi Emma,
    I would think a trained guard dog would be a legitimate business expense.

  43. Bradford Sparks on Fri, 2nd Mar 2012 5:08 pm
  44. I have read your recommendations and will attempt to follow the 7 year depreciation rule for my two dogs. What line on Schedule C do I make the 7 yearr depreciation entry. Also, our female dog had to have surgery because she broke her knee to the tune of $1800. Where do I put that expense on schedule C.

    Thank you, Brad

  45. Admin Roberg on Sun, 4th Mar 2012 12:10 am
  46. Hi Brad,
    So I see you’ve noticed that some of the normal expenses of professional dog breeding are just not on the Schedule C are they? It’s okay–there are lots of other professions that have problems with the Schedule C as well.
    First–the easy answer: depreciation goes on line 13 of your schedule c. I recommend using a software program and not doing this by hand. If you claim depreciation, you also need a form 4562. If you’re using software, you’ll type in your assets–your dogs are assets. You’ll use the MACRS depreciation (there are lots of types of depreciation, but MACRS is the one most everybody uses. It’s pronounced “makers”.) When you use a good software program, you’ll input the type of asset, the date of purchase, the type of depreciation –that’s the MACRS, how many years to depreciate for –that’s 7. It will figure out the depreciation for you and will carry the numbers to the right forms for you. It’s worth the price of the software to have it done.

    No-where to put the vet bills. I would call it, Veterinary expense–and list in the other expense category. Other expenses are listed in part V on page 2 of the schedule C. That’s where I put anything that doesn’t “fit” the pre-listed categories.

    Hope your dog is doing better after the surgery.

  47. mark on Sun, 18th Mar 2012 8:27 pm
  48. So i have been reading the ‘‘Humanity and Pets
    5 Partnered Through the Years (HAPPY) Act” and am seeking some advice on how to claim it for my two pet dogs. It is my understanding i can claim pet care and medical,vet fees upto $3500. What isnt clear in the bill is how/where i claim the deduction. Do you know?

    You can find the bill I am referencing here:
    http://www.gpo.gov/fdsys/pkg/BILLS-111hr3501ih/pdf/BILLS-111hr3501ih.pdf

  49. Admin Roberg on Sun, 18th Mar 2012 9:13 pm
  50. Hey Mark,
    I’ve actually heard about the bill. Unfortunately, it never passed. There is no place on your 1040 to claim the deduction because you can’t. Sorry.

  51. Jodi on Fri, 13th Apr 2012 10:15 pm
  52. We own a cabinet shop that was robbed in 2006. We have two German Sheps that have spent 24 hour/day guarding our shop. They are working guard dogs. Recently one of them was hit by a car on the property while working. Broke her pelvis. We had to spend 10K on the surgeries to save her, but within a 608 weeks she will be back on “duty”! Can we claim the surgery as an expense? Seems excesive, but she is a guard dog and they sell dogs with her training for 8-10K dollars………..
    Thanks,
    Jodi

  53. Admin Roberg on Sat, 14th Apr 2012 2:00 am
  54. Hey Jodi,
    The $10,000 does sound excessive but let’s say that you had to repair the burglary system on your store–would that cost $10,000? I think it’s quite possible that you would spend that much. What you might want to do is depreciate the cost. I know that sounds crazy, but let’s say she got hit by a car and died. You’d have to replace the dog right? So it would be reasonable to purchase a dog and with the training would cost 8 – 10K so that would be a reasonable expense.
    Now, you might even be able to get away with 100% depreciation because the law allows that this year. So–do you need the deduction now or later?
    Part of me says it sounds crazy but I think you’ve got a legitimate expense.

  55. Peter Speth MD on Sat, 9th Jun 2012 2:35 pm
  56. My wife and I have legitimate home offices representing 14% in square footage used exclusicely for business. My question relates to our 100-lb pure-bred German shepherd who is our household pet and was never trained as a guard dog, but like all German shepherds, is by nature a very excellent watch dog. She gives alarm if anyone approaches the house, day or night, and alerts us if something is amiss in the house. With that background, can we calculate 14% of our dog food and vet expenses as a business expense to be included in home office expenses? Looking forward to your response.
    Peter Speth

  57. Admin Roberg on Sun, 10th Jun 2012 12:29 am
  58. Oh Peter,
    I want to say yes so badly (because my dog guards my house and I have a home office too!) But the answer is no. My son even refers to my dog as my secretary because she’ll sit on the sofa by the door and kind of stop him from coming in. The main difference between my dog and my real secretary is that my real secretary bites, the dog just looks at you. :) (I’m gonna be in so much trouble for that comment.)

    Anyway, I can’t help you with the dog deduction, but check out this post, it might help you boost your home office deduction: http://robergtaxsolutions.com/2011/07/how-to-boost-your-home-office-deduction/

  59. Jan Roberg on Wed, 13th Jun 2012 1:07 am
  60. Hi Peter,
    Just one more thing. I was in an “tax professional chat” group and I brought up your dog as a home office expense idea. What I got was a court case where they sent the tax preparer to jail for that one–so–again, no. Here’s the court case, just in case. The dog expense is on pages 17-18. Granted, they’re claiming the whole of the dog expenses, but still the message was pretty clear that no–the dog won’t count. http://ia700505.us.archive.org/18/items/gov.uscourts.iasd.38340/gov.uscourts.iasd.38340.269.0.pdf
    I tried.

  61. Admin Roberg on Sat, 16th Jun 2012 1:23 am
  62. Just thought I’d post this piece from Fox Business news. They’re basically saying the same things I am but you can see a different source: http://www.foxbusiness.com/personal-finance/2012/06/14/can-write-off-my-dog/

  63. Danielle on Tue, 24th Jul 2012 6:04 pm
  64. Hi, I started purchasing show dog puppies in 2002 for future breeding. The first two didn’t work out. The third puppy was purchased in 2003. I show the dogs to AKC Championships and do health testing before commencing breeding. In 2005 I whelped my first litter from the third puppy/dog. I whelped and sold puppies in 2005,7,8,9,10,11,and 12. I have never claimed it as a business because I have been told I can’t. Two years ago I started a corporation in order to use the dogs to produce other products to sell in order to finally claim the dogs and expenses. I have not completed production or sold anything under the corporation yet so have had zero dollar tax filings. All of the ground work is done and I would like to know how to start claiming everything and how far back I should go? Along with the training products I am also going to start producing yarn from their fur next year mixed with cashmere from goats. I will have to purchase the goats and spinning equipment too. Can all of these activities be claimed under the one corporation? What will the IRS do about all the puppy sales money so far? I have spent WAY more than I have ever made because some puppies are kept for future breeding and I have purchased many in hopes of breeding. Some worked out and some didn’t. I literally have 10 years of work and would like to know how to legitimize and claim it. Thanks!

  65. Admin Roberg on Wed, 25th Jul 2012 12:20 pm
  66. Ah Danielle,
    You’ve got Samoyeds! Does anything else really matter? Is there anything cuter than a Samoyed puppy? Anyone who doesn’t know what I’m talkiing about can click on this Google images link: https://www.google.com/search?hl=en&tok=bouiKXCSj2FRyNpbibwWYQ&cp=5&gs_id=i&xhr=t&q=samoyed&bav=on.2,or.r_gc.r_pw.r_cp.r_qf.,cf.osb&biw=1441&bih=723&wrapid=tljp134323500515008&um=1&ie=UTF-8&tbm=isch&source=og&sa=N&tab=wi&ei=viMQUPWrH4bVqgGCmYEg

    Okay, now that I’m done gushing, let’s get down to business. It sure sounds to me like you’re in business with these dogs and you’re doing it to make money. Unless I’m sorely mistaken–you’ve got yourself a business. I think setting up the corporation was a smart idea for you–it adds legitimacy-but I’m not sure you needed the “legitmacy” you sound serious about your dogs.

    You may go back to 2009 to amend old tax returns–you’d file the old ones as a sole proprietor on your 1040 with a schedule C. Although I could easily argue that you could go back to 2005–it wouldn’t do you any good–you’d get no money back from the IRS by changing your status for the earlier years.

    I’m assuming that you claimed the money that you made from selling the puppies on line 21 of your tax return as hobby income. (And then with the hobby write off rules being so restrictive–well then you got little if anything for a write off.) This is good for you because it makes your case stronger–you’re saying “Look–I claimed this income but I didn’t realize I was allowed to claim it as a real business—yadda, yadda, etc.”

    Now, if you didn’t claim the puppy income the first time around–it makes claiming the deductions a little sketchier. “Oh, gee, now that I know I can claim my expenses, I want to claim this income because it’s a deduction!” I realize that’s not what you’re really saying but that’s what the IRS agent reviewing the return is hearing. It doesn’t mean you can’t go back and amend the returns–you just need to realize that it’s going to be looked at with a higher degree of cynicism. Make sure you put in the explanation: “Taxpayer omitted revenue from sale of livestock in original return and is correcting the mistake.” Of course, you’re also reporting the expenses as well (and you’ll mention that) but you want to show that you’re reporting that unreported income. (And yes, they can see through that when you show those losses, but it sounds better.)

    One thing you’re going to have to do is make some harsh judgment calls. Which dogs are “livestock” and which ones are pets. What percentage of the expenses are business versus the percentage for pets? I hate thinking of dogs as livestock–but in tax terms, that’s what they are. For tax purposes, treat the dogs like farmers treat cows on their tax returns–same rules, and you should stay on the IRS’s good side.

    Remember, to be a real business, you have to be in business for the purpose of making a profit. If you never make a profit–there’s no business. That’s why dog breeders have such a hard time proving their businesses aren’t hobbies. (You gotta sell a lot of puppies to make money on this.) But it sounds to me like you’re really working it and doing more than just shows and puppies–that’s why I really think you should win this argument.

    It’s over 100 degrees outside my office today so it’s a little hard to imagine right now–but I’m guessing a sweather made with Samoyed fur and cashmere would be super soft and snuggly. Good luck!

  67. Danielle on Wed, 25th Jul 2012 1:29 pm
  68. There is definitely nothing on earth as cute as a Samoyed puppy. Thanks for the quick response. Unfortunately the big tax prep guys discouraged me from claiming anything, including the income. I wouldn’t have a hard time determining pet versus “livestock” since I place the ones that don’t work out and place the ones that are done breeding. Every dog I own is part of the breeding program either now or for the future. I do still love them very much and feel they deserve true pet homes when they are no longer showing/breeding. Maybe I should just start from this year. Can the corporation bulk purchase all my supplies, equipment, and so called livestock, and claim it as start up costs? I can handle losing all the deductions for the previous years. If so, should I go back to the start date of the corporation or stick with the zero dollar returns and file it all under this year? I really just want to do this right from now on and am so grateful I found your advice! Thank You

  69. Admin Roberg on Thu, 26th Jul 2012 8:37 am
  70. Hi Danielle,
    My daughter has already claimed you as our client and wants to trade tax service for puppies. (Note the plural.) That said, she leaves for college again in a month etc., etc.
    But here’s what I think you should do–find an enrolled agent in your area. Here’s a link to help you: https://portal.naeacentral.org/webportal/buyersguide/professionalsearch.aspx

    I like being able to talk with someone face to face. Especially in a business like yours because I find that when you talk things out you’ll come up with the best solutions. The big box tax companies are not going to have the special skills you’re looking for. (Now I started there–and I learned a lot there–but the average tax preparer doesn’t have as much training as you’re going to want.)

    Here’s another place to find a preparer–on the Bradford Tax Reduction Newsletter site. (Oops, I’m not on there, have to renew my ad.) This might even be a better list for you–but smaller. These are folks who read the Bradford Tax Newsletter and specialize in small businesses. They’re going to be a little more aggressive than your big box people. Legal–but using everything they’ve got to reduce your taxes.

    I realize I haven’t given you a real answer–it’s because I think there should be some “sit down and really look at things” before you decide what’s best–and make sure whatever you do is right too. And for what it’s worth–I’m in St. Louis Missouri. I do take out of state clients–but if you can find local, I think that would be better for you. (And I really don’t trade for puppies.) :)

  71. mary on Thu, 2nd Aug 2012 3:43 am
  72. I was just wondering if I get a dog for free and I sell that dog can I claim that as income on my self employment taxes? I have made about 3000 dollars rescuing dogs and then selling them. is this considered an income?

  73. Admin Roberg on Thu, 2nd Aug 2012 1:12 pm
  74. Hi Mary,
    Thank you for rescuing dogs. That’s pretty cool. And I’m amazed that you’re making money doing it. Yes, that would qualify as a business and that would be an income.
    The one warning that I’d put out there is to document things. Keep track of the date you found the dog, where you found it, stuff like that. My biggest concern for you would be somebody claiming that you stole their dog and sold it–that would get you into all sorts of trouble. Normally I’m recommending record keeping to keep you out of trouble with the IRS–but in your case–you only need to rescue one dog that has an “owner” and you could have a problem. Your record keeping will help keep you out of trouble that way as well.

  75. mary on Sun, 5th Aug 2012 7:05 pm
  76. I dont find the dogs off the streets I have them given to me from people that do not want them. Then I vet them take care of them and then find them new homes. Yes I do sell them to make back my money. So as long as im keeping records of every dog , what kind of dog it was and when I sold it I’m okay to report this income as self employment? the only thing I don’t have is names and addresses of all the people I’ve sold a dog too. is this okay or do I have to have that information?

  77. Admin Roberg on Sun, 5th Aug 2012 8:46 pm
  78. Hi Mary,
    I’d start keeping track of that information from now on, but I wouldn’t let that stop you from claiming your self employment. Make sure you write off your vet and other expenses too. It sounds good to me.

  79. Steven Fall on Sat, 10th Nov 2012 7:10 pm
  80. Hi there!!! I am a professional groomer for a large corporation and a vet’s office I do groom on the side for family and friends although the income from my family and friends is not enough to claim I wonder if I could claim my personal dogs, I have 5 rescues, food and vet care because I use them as my own business cards if you will. I have been told that I could claim these expenses but only if i owned and operated my own grooming salon. I still gain clients based on my own dogs grooms but I don’t own my own business really. One last question can i be introuble if i don’t claim my commission on my side dogs or is there anything I can claim from that? How much do i need to make to claim when grooming on the side? Sorry that I am all over the place, my main question is can i claim my dogs food even if i don’t own my own business and is there any thing i can do to impact my income tax with my side jobs? Thanks so much for your advice!!

  81. Admin Roberg on Sun, 11th Nov 2012 9:05 am
  82. Hi Steven,
    Lots of issues there. First–all income you receive is supposed to be reported on your 1040. All of it. For example: my husband paints, he’s not a professional, but he just sold a painting for $400. That’s got to go on my tax return. I won’t do a schedule C for him this year, I’ll just claim it as other income. Some day, I hope I’ll be doing a schedule C for him and writing off all of his painting expenses, but for now, it’s just cool that he sold one.

    So you might not have a grooming business, but you are a professional groomer and you use your dogs to bring business to your employer’s business.

    If you are going to claim these expenses–you would put them on a form 2106–employee business expenses. Now here’s two things–the deduction isn’t nearly as good. And also, you want to show that your personal dog expenses really are for business. This is the hard part because let’s be real part of having dogs is because we love them, right? So you really need to kind of separate that out. I would say the grooming expenses–yep, not a problem. After that it gets a little dicier.

    But here’s the other part–first, see if it makes any sense for you to even try claiming those costs before you waste time sorting out what was business and what was personal.

    For example: from my own experience. My husband used to work for a company called Golden Cat. They made Tidy Cat kitty litter. (It’s now part of Nestle’.) My cat, Charlie, was kind of a guinea pig for cat litter testing. Yes, the company had testing facilities with lots of cats but Charlie wound up being used quite often for “what’s that litter really like in the house?” (And Charlie was also golden in color so he thought my husband worked for him.)

    Anyway, I thought about trying to write of Charlie’s expenses–but like you, my husband worked for a corporation. By the time you add up all of the cat expenses, in order to claim them, they have to be more than 2% of your total income. For us, it wasn’t even close–besides, we got most of the test kitty litter for free.

    But for you–you’ve got 5 dogs–you might cross that threshhold while one cat wouldn’t.

    Play with the numbers, but make sure that you can substantiate everything and show how your dogs are helping your company’s business. If you can’t substantiate–don’t try it.

  83. Antwan Leon on Sat, 8th Dec 2012 8:26 pm
  84. I have been breeding for about 8 years now. I have a website though I tend to use social media as my sole source of advertisement and word of mouth from happy customers. I never knew how I could claim my babies (because they are apart of my family not just dogs). We are a certified kennel (certified by our Kennel club), we usually have 2 litters a year. What all could I claim on my taxes, ie food, vet bills, gas for transporting them to their new homes, income for the sale of said puppies, and how do I go about doing this? Could I still do my taxes myself?

  85. Admin Roberg on Sun, 9th Dec 2012 8:25 am
  86. Hi Antwan,
    Yes, you sound like a legitimate breeder business. The big thing is document, document, document!
    Report the income from the sale of the puppies. Report the expenses of breeding and raising the puppies. Keep a log book. Make sure you get receipts for the sales.
    You can still do your own taxes, but you might prefer to have a professional do the first business return for you. That way you’ll have a guide of what you should be claiming and tracking. Then use that professional return as a guide in the future.
    I think the most difficult part of the tax part for you is depreciation. You depreciate a breeding dog like livestock. (I’m not sure what’s worse, the math or the emotional part. Like you said, you called your dogs your babies. I get that, my “baby” is snoring in the corner as I type this.) Also, you might be depreciating some of your equipment. (Maybe not–just thinking about the kennels and stuff.)
    You don’t need to use Quickbooks, but do save receipts for everying. Do keep a mileage log for your trips to deliver puppies and trips to PetsMart and the vet too.
    So—–did you want to post a puppy picture? You’ve got me curious.

  87. Antwan Leon on Sun, 9th Dec 2012 1:30 pm
  88. Ok, Is it possible to use something like H&R blocks online tax service to do them? If so that would be great, that’s what I use to do my personal taxes. Another question, do I need to file under my kennel name, or can I just add this to my personal taxes? And I hope the pic shows up. The picture is of the males of the last litter and their father. Love my babies like I said.

  89. Admin Roberg on Mon, 10th Dec 2012 8:42 am
  90. Hey Antwan,
    Since your asking the question on my website, why don’t you do your taxes on my website as well? I’ve got the tab, do your 2011 taxes here. I’ll switch it out as soon as the new 2012 version is produced.

    You’re put your kennel on your own tax return. You need something called a schedule C for the business. If you show a profit, you’ll also need a schedule SE (it’s automatic if you’ve got a profit.)

  91. sandy c on Fri, 25th Jan 2013 3:19 pm
  92. I purchased 12 shih tzus all within 2012 (as pups) to be used in a start up breeding program. 3 rehomed at much lower price then paid, 1 died from an auto immune disorder before turning 1. My questions are many lol. Can I claim a business or must I be a hobby? I assume they will need to be depreciated on a 6-7 year type plan…. I am in Missouri with my husband (who is active duty military). His house of record is Texas and I have a Missouri drivers license but have never worked within the state…. Is there any paperwork I must file to have these dogs as a breeding business??? I live outside city limits. We will be moving next year with orders. Should I file an LLC or file any type of small business paperwork? My website will be set up in the next couple of months. Not established as the pups were too young to breed and produce. Any pertanent info I need to know and do as I am just establishing my business??? THank you for any guidance.

  93. Jan Roberg on Fri, 25th Jan 2013 9:40 pm
  94. Hi Sandy,
    Your question is really good and really important–you see you’re going to be breeding Shih Tzus and you bought 12 of them–so that sounds pretty serious. But here’s news from the IRS: yo can’t begin to depreciate a dog for a dog business until the dog is of breeding age. So, although you had the expense of purchasing the dogs in 2012–you won’t be able to put them on your tax return until they are mature enough for breeding.

    I think you’re smart not to claim a business yet. Now–your next issue, if you chose to file an LLC, you’ll want to do that in the state you live in. If you’re moving, it might make sense to wait until you have your new state. And I think you’ll be fine waiting for a little while before setting up your LLC.

    The only other thing that I really would urge you to do is to check out the rules in your community about businesses in your home. You mention being outside city limits–just make sure you’re in line with the county also. Better safe than sorry.

    So how totally cute is it to see 12 Shih Tzu puppies running around at once? That’s gotta be incredible.

  95. Morgan on Sat, 26th Jan 2013 1:40 pm
  96. I have a dog who I obtained with the goal of training her to be a working search dog. She is now trained to do cadaver detection. We are affiliated with a tax exempt agency that provides search dog services to law enforcement agencies. We are not paid or reimbursed for our services. Now that we are working real missions (prior to 2012 we were only in training), I am wondering if I can legitimately claim the costs of maintaining the dog (food, veterinary care) as a non-cash contribution to the agency. I do this volunteer work on a part-time basis (have to have a day job to cover the expenses).

    Thanks so much!

  97. Morgan on Sat, 26th Jan 2013 2:13 pm
  98. Oops, in the question I just posted I made an error in my main question.

    I am wondering if I can legitimately claim the costs of maintaining the dog as an out-of-pocket expense related to my volunteer work for this agency.

    In the past, I have not deducted the maintenance expenses although I have deducted dog-related expenses that I would not have if we were not doing this work (equipment for search work, training aids etc).

    Thanks!
    Morgan

  99. Jan Roberg on Sun, 27th Jan 2013 2:39 pm
  100. Hi Morgan,
    I say yes. Keep all your receipts of course and get a letter from the agency about what you did to cover yourself.
    Thanks for your community service. I hope I never need you, but I’m glad you’re there if I did.

  101. Jan Roberg on Sun, 27th Jan 2013 2:42 pm
  102. @ Morgan,
    I think I understood you correctly the first time–your dog expenses are deductibel on Schedule A for charity, not as a 2106 expense (because you have no income from that work.)
    I think that’s what you meant anyway, but I wanted to clarify to make sure.

  103. Morgan on Tue, 29th Jan 2013 10:28 am
  104. Thanks so much for the quick reply! Yes, I will include it as part of my charitable contributions. I do have all the documentation and receipts. My Dad was a tax guy back in the day which is why I was born on Dec 31 and why I keep good records. :-)

  105. Judy on Tue, 19th Feb 2013 11:34 am
  106. We’ve had a farm Schedule F for several years now.

    In 2011 we started selling registered puppies. My question is: Is this new puppy selling business also considered a separate Farm or a new business?
    For our 2011 taxes I claimed it as a farm on a schedule F.
    For our 2012 taxes do I need to change this to a business expense on schedule C instead? and not fill out a schedule F?
    Thank you!

  107. erik m on Thu, 28th Feb 2013 12:16 pm
  108. We have a farm and file a schedule F. We also on a small scale buy and sell dogs for Schutzhund and police training. Can these dogs be considered “Livestock” on the schedule F? And therefore the cost basis, feed and vet care be deductable on the Sch F?

  109. Arthur on Sat, 2nd Mar 2013 1:19 pm
  110. Hello and thank you for your time! my Fiancee and I are getting a new golden retriver puppy, we have been volunteering with an orgazination that trains service dogs. We are purchasing with the intention to get him/her trained to be a therapy dog to take our dog to hospitals, senior homes, homes of persons with disabilites. Is this a business and how can we structure it to be a home based business helping those in need? The purchase will be 2-3000, the vet bills and micro chip will be 3-500. We will be purchasing special alkaline free organic food (because my fiancee suffered the loss of her dog 7 years ago to cancer) we really want to make an impact in the lives of those who need relief from stress and pressures from their disabilites. Can you help give us direction please? THANK YOU and God Bless.

  111. Mike R on Sat, 2nd Mar 2013 8:17 pm
  112. I breed, raise and train show dogs purely for my pleasure. I only do a litter every few year, and always keep a pup for my own breeding program and training interests. Since my breed tends to have small litters, I really do not make a profit, so I have always considered this purely a hobby. I am not really sure what expenses I can claim to write off the litter incomes down to 0. I do extensive health testing on my dogs, but that is ususally in the years before I actually breed them and I may or may not have a litter in that year. My show results are why people buy my dogs, but in the year that a particular bitch is bred, she may or may not have been out in the show ring. Can I write off the showing of other dogs that years as essentially advertising? I assume I can write off all the vet expenses for the delivery and management of the litter. Can I write off food? What about for the retired bitches, who are still being shown and making our kennel name known to people who are looking for my breed of dog? Thanks for posting this interesting (and confusing) topic.

  113. Jan Roberg on Sat, 9th Mar 2013 10:31 pm
  114. Hi Eric,
    It sounds to me like you’ve got a good case for claiming your dogs. And, they would be claimed like livestock.

  115. Jan Roberg on Sun, 10th Mar 2013 11:51 am
  116. Hi Arthur,
    In part one of this series I said that there were two places you could claim a dog–as a business expense or a medical expense. You just showed me that I’m wrong–I think your case is a charitable donation.
    You’re not really going into business here, you say nothing about making money doing this. You’re talking about helping people, volunteering, etc.
    I would claim your expenses as a charitable contribution to your service organization. Be realistic–what percentage of those expenses are really for the charity. Clearly the training. But come on–you’re getting a golden puppy. He’s really of no use to the organization until he’s trained. (I could be wrong about that, just thinking of a golden retriever puppy is making me feel better already–there’s something to it.)

    Now if you want to start a business where you have people pay for your dog service–then you’d be writing it off as a business expense. But you clearly couldn’t claim your puppy expenses as a business expense because your dog clearly isn’t ready to hire out yet.

  117. Jan Roberg on Sun, 10th Mar 2013 12:02 pm
  118. Hi Mike,
    You pretty much hit the nail on the head when you said that your dogs are a hobby. You can write off hobby expenses up to the amount of the income on your Schedule A.

    That could make writing off the expenses a worthless deduction. Here’s why: Let’s say you sell some puppies for $1000 and you easily have $1000 worth of expenses. First, in order for your deduction to count, the expense has to be over 2% of our adjusted gross income. Let’s say you make $50,000 a year–2% of that is $1000. Oops, no deduction at all.

    But lets say you sold the puppies for $2000 and had $2000 worth of expenses. Well then you’ve got $1000 deduction. But–if you don’t have enough other deductible items in your Schedule A–like mortgage interest and real estate taxes, then you’ll still be better off with claiming the standard deduction.

    On the plus side. Hobbies are fun! And, when you do sell puppies, you can claim the income on line 21 of your tax return which means you pay no self employment tax.

    In your situation, you’re probably best off just claiming the income as hobby income.

  119. Ruth W on Sat, 23rd Mar 2013 12:43 pm
  120. I have been breeding dogs on my 2 1/2 acre “dog ranch” for 12 years. I am USDA and state licensed. I have always filed as a sole proprietor, but this year became an LLC, sole owner. Do I need to change anything on my current tax return? I use Turbo Tax business software and somehow I always get routed to schedule C. Should I be using sched F? Does it matter as long as I’m listing feed and vet expenses under “other”? FYI, I sell on a pet broker website to pet stores across the US. I discovered your website by accident and am so grateful for all your info. Thanks so much!

    Also, FYI, I have shown a modest profit the past 2 years. I turned 70 in June 2012 and wonder if there are any tax benefits connected with my age. I have always filed married, but my husband is no longer in MO so I am filing married, seperate.

  121. Denny on Sun, 24th Mar 2013 12:11 pm
  122. Hi,
    My wife is a professional counselor (finishing up her her internship currently) and works with a group of counselors out of a dedicated office. We just got a puppy that she plans to use as a therapy dog at the office.
    What are our options for tax write-off for the pup? He’ll live with us and also be our family dog, but he will join her at the office on a “regular” basis and for certain clients (especially children) I believe he is a “necessary” part of their treatment.
    Any thoughts?
    Thank you!
    Denny

  123. Catherine on Mon, 1st Apr 2013 9:55 am
  124. Hello,

    Thanks for such a helpful article/forum. I’d like to get your advice on my situation if you’re still available through this avenue.

    I work from home in a secluded canyon in the mountains. We purchased our dog as a protector for me since my husband often works early/late away from the home. Our dog is half bulldog, half lab. Although he’s actually very friendly, his look and stature is quite frightening for people who do not know him. As a side note, twice this year he’s had major surgery to remove foreign objects totaling about $10k.

    1. Does our dog qualify as an actual tax deductible guard dog?
    2. Can those surgery expenses be included in our taxes?
    3. Do we need to have a note of sorts from our veterinarian/surgeon declaring our dog as a guard dog?

    Any advice/guidance would be greatly appreciated. Thank you!

    Best,
    Catherine

  125. Christina on Tue, 9th Apr 2013 8:53 pm
  126. Hi there, I just started my breeding business in 2011. I had my first litter in 2012. I lost my female in a hit and run late 2012. she cost me 10K. 5 was paid in 2011 which was claimed as a loss. the other 5000 was paid in 2012 after my first litter. Do I claim her total cost as a loss for 2012? It kills me to even think this but reality is what it is. Any advice?

  127. Cam on Mon, 15th Apr 2013 10:40 am
  128. Hello! I purchased an adult bitch to breed in 2012. After her purchase, I had her vetted and then she was bred and had her litter on puppies on December 29, 2012. The puppies weren’t able to be sold, of course, until they were 8 weeks old and that was in February 2013. In 2012, I had costs to purchase the bitch, have her vetted and then, of course, her regular care (food, grooming, etc). So, I have zero revenue for 2012, but I sold her puppies for a total of $4250…but that was in 2013. So, can I roll all of the expenses from 2012 into my 2013 return when I am able to also claim the revenue from the puppies to offset that income? OR should I go ahead and claim the expenses on the 2012 taxes and then any additional expenses incurred in 2013 along with the revenue on the 2013 return? (I apologize if I made no sense here).

  129. Jan Roberg on Mon, 10th Jun 2013 8:34 pm
  130. Hi Ruth,
    Now that your business is an LLC, it’s still perfectly fine to file your taxes on a Schedule C. Actually, that’s probably the best solution for you.
    You could probably make an argument for a schedule F, but it really wouldn’t make a difference for your taxes and I think the IRS would prefer you did a Schedule C anyway.
    Sadly, there’s no tax benefit to your age either. (Sorry.)
    Now about filing separate–you mentioned Missouri–so, it might be to your advantage filing separate anyway (for some people with pensions, it works better.)
    But, if you and your husband are on good terms, and you want to file together–you can–just list him as a non-resident. (Run your taxes both ways to see what works best for you.)

  131. Jan Roberg on Wed, 12th Jun 2013 8:25 pm
  132. Hi Denny,
    I just had the privilege of meeting two wonderful therapy dogs the other day. We were having a nasty storm in St. Louis (again) and their owner (caretaker?) had brought them into my office building for shelter. Wow! I got the opportunity to pet them. Storms turn me into a basket case and I suddenly felt much better. I knew that therapy dogs were helpful, but I never expected that they could help me.
    Anyway, you have a situation where you’re going to have a working dog that is also a pet. You’ll want to be very careful–you’ll want to allocate the percentage of “pet” time versus the percentage of “therapy” time and allocate the expenses accordingly. If your wife is an employee, then the expenses will go on a form 2106 instead of on a schedule C like someone who is self-employed.
    Of course, any expenses that are strictly for the therapy work–like the therapy trianing classes, would be 100% attributable to the job.

  133. Jan Roberg on Sun, 14th Jul 2013 7:19 pm
  134. Hi Catherine,
    You question whether you can claim your half bulldog/half lab as a guard dog for your business. Here’s my gut reaction–you can argue it, but my gut reaction is–what’s he going to do if you’re attacked? Lick the guy to death?
    I’m not trying to be flip, I could be wrong, but bulldog/lab as a guard dog is pretty unusual. Yes, he looks frightening, but you yourself say that he’s friendly.
    So, how would you document his guard dog training? Has he had any? Really, what would happen if you were attacked? Would he defend you? Would be provide a formidible defense?
    Remember, claiming a dog on a tax return is going to be a flag to begin with, so before you try to claim your dog, you want to be pretty confidant that you’d survive the audit. So, let me ask you this, if an IRS agent came to your house to investigate your guard dog claim; what would your dog do? If the answer is–he’d make the IRS agent have an accident in his pants–I say go for it. Otherwise, I’m leaning against claiming your dog. Sorry.

  135. Jan Roberg on Sun, 14th Jul 2013 7:30 pm
  136. Hi Christina,
    I’m sorry for the loss of your dog. I see by your email address that you definitely do have a breeding business. Just as a heads up to people who want to have a business–a website gives you a little more “proof of business”.

    So you already claimed half of the cost of your dog on your 2011 return. So, forgive my choice of language, I’m wording it in business terms–you already capitalized half of the expense. So, you’re talking about a $10,000 breeding bitch and you already claimed a 50% deduction. So, you can only claim a loss on the $5,000 remaining basis.

    If I’m misunderstanding, and you haven’t already written off the first $5,000–then you would write off the entire amount that hasn’t already been depreciated in 2012.

    (I bet those puppies are adorable.)

  137. Jan Roberg on Sun, 14th Jul 2013 7:32 pm
  138. Hi Cam,
    I would roll the expenses to 2013 as “start up costs” so that you have an offset against the revenue from the puppies. I think that makes a lot of sense.

  139. Michael on Mon, 23rd Dec 2013 2:22 am
  140. Hi, I purchased a French Bulldog female in 2012 and in April of 2013 she had her first litter and I made a decent amount of profit for the litter, surpassing my initial investment by a lot. So between April and now I have purchased a male and another female for future breeding. My question is this: If I bought the two dogs with the profit from the first litter does that cancel my total profit for the year even if the two new dogs are not a part of my breeding program yet?

  141. Jan Roberg on Fri, 27th Dec 2013 8:41 am
  142. Hi Michael,
    Dogs that are purchased for breeding can’t be depreciated (or expensed) until they are able to breed. So, if you purchased puppies, you can’t claim the cost until they’re ready for breeding.

    So here’s my question for you. Do you have a hobby or a business? As a hobby, you only claim regular tax on the income–unlikely that you’ll be able to write off expenses but there’s another post about that.

    As a business you’ll pay self employment tax. But you will be able to write off the costs associated with the breeding and care of the litter.

    Here’s some information about hobby vs. business that might help: http://robergtaxsolutions.com/2010/10/business-or-hobby/

    Bottom line though–you can’t write off the new dogs until they’re of breeding age.

  143. Beth on Sun, 29th Dec 2013 12:06 am
  144. Hi there. I have a couple of questions. One related to livestock guard dogs and one related to the livestock. My family has lived on a farm for the past 5 years. When we first moved here my father-in-law had a handful of Katahdin sheep. Over the last 5 years we have basically taken over the flock and increased its size to 70 ewes (through retention of the ewe lambs each year). This is the first year that we will be filing a Schedule F claiming the income and expense of the farm. We purchased a Great Pyrenees pup in April to train to guard the sheep (there are already 2 grown Pyrenees dogs (approx. 12 years of age) that have been here for many years). Unfortunately, the pup died in July – we’re not sure what caused it – and we ended up getting another Pyrenees pup. He is now about 7 months old. Question: how do we handle the cost of the two pups? Can we deduct the cost of the pup that died? Do we need to depreciate the cost of the remaining pup?
    Also, since we did not purchase the ewes, should we be depreciating them? If so, should the value be based on what would typically be spent to buy a breeding ewe? All of the ewes in the flock have been through at least one lambing season – we did not keep any of the ewe lambs from our 2013 season.
    I appreciate any feedback you are able to give!

  145. Jan Roberg on Wed, 1st Jan 2014 12:30 pm
  146. Hi Beth,
    First and foremost, I’m going to give you the link to Farm taxes, it’s called Publication 225. http://www.irs.gov/pub/irs-pdf/p225.pdf

    I want to make sure you have the whole publication. Sometimes, when I’m trying to find something about farming, I’ll get a portion of the book and it won’t have the section I’m looking for. You should download this to your computer and have it accessible because this has a lot of farm answers in here.

    Since this is the first year you’re actually filing a Schedule F for the farm, I recommend hiring a tax professional with farm experience to make sure that you get every deduction you’re allowed to take. My gut feeling here is that you’ve got more to depreciate than just the livestock and dogs. It will be worth the money to find a good enrolled agent and do a sit down. Even if you’re skyping with someone.

    The lambs that were bred and sold this year are ordinary income on your Schedule F.

    The ewes that were raised by you but being used for breeding purposes are treated differently. You don’t depreciate them, but you do expense their feed and care. When you sell one of these ewes, it goes on form 4797. If you held the ewe for less than 12 months, you’d report it in part 2 and pay ordinary tax rates on her. If you had her for over 12 months (which I’m guessing would be all of them) then you’d report the sale of that ewe on part 1 and pay capital gains tax on her. Here’s a link to a form 4797: http://www.irs.gov/pub/irs-pdf/f4797.pdf

    But your question is about the puppy. The puppy was purchased for draft purposes but he never made to an age where he could be used. That’s the key with livestock purchased for working purposes–you can’t begin to write them off until they reach an age where they can work. I’m sorry but my opinion is that you won’t be able to expense the cost of the pup that died.

    The replacement pup will be able to be depreciated once he is “active”. Once the dog is trained and can actually perform the work that’s required of him, you may begin to depreciate him. The depreciation time for a dog is 7 years. The depreciation time for sheep is 5 years.

    Good luck.

  147. DEBBIE on Fri, 8th Aug 2014 3:23 pm
  148. If a dog breeder files a Schedule C, can they take a deduction for dog infants lost at birth?

  149. Jan Roberg on Sun, 10th Aug 2014 4:58 pm
  150. Hi Debbie,
    Generally, if you’re filing a Schedule C, you’re claiming a cash basis accounting system. So, if the puppies die, you haven’t already claimed that income on your tax return. So you can’t claim a loss when they die at birth.

    Now if you’re doing an “accrual method of accounting” that is, you’re claiming the income from orders people have placed and paying tax on that income, then you can deduct the loss because you already claimed the income. See the difference?

    I’m guessing that you’re using cash basis accounting. That’s the default on a schedule C. Beside, who would want to claim income on puppies that haven’t been born yet?

    So, no, you can’t deduct a loss for them.

    I’m sorry about the loss of the puppies. I know it’s a business, but it’s still hard to deal with.

  151. Stephanie on Wed, 20th Aug 2014 12:06 pm
  152. Hi Jan,

    I started breeding dogs 14 years ago in both Germany and the UK. It has always been a hobby and certainly never left a profit under the bottom line. During those years I bred less than one litter a year.

    I show, I health test and I only have 3 dogs living with me of which one is long retired and the other one “just a Pet”. I Co-own dogs who live with Pet owners and will allow me to use them for one litter. Dogs that I use at stud are usually sourced via artificial insemination and Semen is bought from European breeders in order to be able to keep my lines going.

    I am also a dog show Judge and have been head of the breeding department in my German Club. For this reason my main aim of my website as well as another Dalmatian related website – http://www.luadalmatians-world.com is to provide solid information about the breed and not to make a profit.

    In the countries I have previously lived there was no need for me to ever keep receipts as I never bred enough and if I did I spend a lot of money on the breeding and therefore it was clear that not profits where achieved.

    We moved to the States in 2012 and I am planning to raise my third litter in 2015 since my arrival. For the last litter I bought a dog in Germany and had it flown to the States, for the upcoming litter I am planning to import Semen.

    My question to you is if I need to worry about being “called” a business? Do I need to proof one day, that I do not make money but that I am passionate about this hobby? Is it OK to mention prices on the website?

    Thank you in advance for you time!

  153. Jan Roberg on Sun, 24th Aug 2014 12:42 pm
  154. Hi Stephanie,
    You have a hobby, you admit you have a hobby. It’s only one litter. Stick with calling it a hobby. The only thing here is that as a hobby, you will report the income on line 21 of your US tax return.

    You might be able to claim the expenses on your Schedule A–but they’re subject to a 2% floor of your adjusted gross income. (Translation–you won’t get to deduct the full expense if at all.)

    But that’s okay, you’re doing this because you love to do it. And that’s okay.

    The only thing wrong with mentioning prices on the internet is that you will be expected to honor that price for a period of time even after you remove the price. I don’t know all the rules about that, you’ll want to check that out somewhere else.

    So, should you worry about being called a business? I say no. If the IRS does decide to call you a business, I’m thinking they’ll be sorry because your costs clearly exceed the expenses and they’d wind up having to give you money.

  155. Lourdes on Thu, 11th Sep 2014 8:40 am
  156. Hi Jan,

    I have a question for you. I’ve been teaching workshops on energy healing for many years. In the workshops I teach participants how to use the energy healing techniques on people and animals. For 11 years, I used my dog for demonstration purposes in the workshops. He was also used as a therapy dog during the classes as well as when I gave private sessions to clients. The dog’s participation in the workshops and private sessions has been regular and necessary and I can demonstrate this fact. As such, I had been claiming dog related expenses under “workshop expense” in my income taxes.

    That dog died last October and I had to buy a puppy to replace him in the classes. I decided on a puppy instead of an adult dog because it’s very important to make sure the dog is properly socialized to be around adults and children who attend my classes. And so, I had the expense of buying the puppy, training her, and putting her into service. My question is as follows, under which category should I list the purchase expenses for the new dog? Workshop expense? or other?

    Thanks so much for your time,

    Lourdes

  157. Jan Roberg on Fri, 12th Sep 2014 3:36 pm
  158. Hi Lourdes,
    I think you’ve got a really interesting question. I think you definitely have a dog that’s a legitimate business expense so how to claim it is the issue.

    First, I’m going to send you to this post: http://robergtaxsolutions.com/2014/01/depreciating-a-bitch/ It’s about claiming the depreciation on a breeding dog–and even though you are not breeding your dog, it think the same rules apply for your business purpose.

    The important issue here is that you can’t actually start expensing the dog until it’s placed into service–but you’ve already done that so you’re good.

    So, you would claim the dog as an asset. You may either depreciate the dog over 7 years, or take a section 179 expense. The link I have you has more information about that.

    But I think making the dog an asset makes the most sense for your business. Then of course you still expense the cost of maintaining the dog the way you always have.

  159. Chasity on Fri, 3rd Oct 2014 3:09 pm
  160. Question. If you do claim your dog as a breeding dog with the depreciate set in motion and it dies. Do you claim it as a loss?

  161. Jan Roberg on Sun, 5th Oct 2014 7:39 am
  162. Hi Chastity,
    I’m sorry about your dog. So you’ve owned the dog for more than a year and you’ve been depreciating her on your tax return. On your tax return, you’ll treat it like a $0 sale – removing the asset basically. It get’s reported on form 4797 in part 1.

    You’re working off the farm rules, chapter 9: http://www.irs.gov/publications/p225/ch09.html

  163. Irene on Fri, 24th Oct 2014 9:03 pm
  164. Hello,

    I read your comments on this page with great interest — there are not many resource son the Web addressing the issue of taxes and dogs. Here is my question:
    Two years ago we got a puppy — not just “a puppy” but “the puppy” for potential breeding — came from a top European breeder, excellent bloodlines. I said “potential” only because anything can happen before the dog matures. 2013 and 2014 — a lot of show expenses to get an AKC conformation Champion title and health clearance — each is a must for responsible breeding (and for high stud fees) — plus shows are not only for the title but for exposure, networking, and the best way to advertise. He already produced excellent puppies as a stud this year — now two more breeding inquiries already, but no profit yet. how is that seen by the IRS?– there is revenue, but the loss exceeds it.

    Can I deduct expenses which I consider directly related to breeding — in our case, showing (show entry and handler fees and travel) and health tests? My business model looks like this: get the Champion title and health clearance, then start collecting stud fees (and for such a dog with such pedigree it is $1200 and up). A stud dog of his pedigree and quality can easily be in demand for more than one litter per year, for many years, even after his lifetime is over (with frozen semen). So, most expenses are in the past now — can I deduct them on 2013 and 2014 returns? I am not planning to deduct anything which is not related to breeding (example: vet visit for vaccination would be needed regardless of breeding, but a visit for a health certificate was only required to go to Westminster in NYC )

    I read about business vs. hobby tests, and we meet most of the criteria for business — we did it in the past (showing and breeding), have the skills, etc, and showing is not something we enjoy doing (who in sane mind would spend endless hours show-grooming and getting up at 4 AM on a weekend to drive to a show instead of, for instance, going to the lake?), but it is hard to predict if the value of the stud dog would appreciate over time, and we don’t depend on this income because it is small compared to our wages.

    What do you think?

    Thanks!

  165. Jan Roberg on Sun, 2nd Nov 2014 2:40 pm
  166. Hi Irene,
    Now that your dog is mature for stud, you may begin to depreciate him. This post might be helpful to you: http://robergtaxsolutions.com/2014/01/depreciating-a-bitch/

    I think you’re on the right track about deducting your breeding expenses. And I also think you’re on the right track about being a business.

    The one thing that I think really helps promote the “business” model, is if you can get a 1099MISC for anything. For example: let’s say someone else with a dog business hires your dog for stud. Since they are a business, if they pay you over $600 then they have to issue a 1099misc for the money they pay you. The IRS requires you to file a schedule C if you receive a 1099misc. So, I recommend that dog breeders start issuing 1099misc when they’re paying for stud service. It would help legitimize the business aspect in the IRS’s eyes.

    Individuals do not issue 1099MISC so if an individual not in business to raise puppies hired your dog, they would not be obligated to issue a 1099MISC. That’s okay, you can still do business with them (I do lots of tax returns for individuals, not businesses) you just won’t get a 1099MISC.

    I think your business model sounds good.

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