Tag: dog breeding

Posted on by Jan Roberg

A Dog as a Business Tax Deduction

Welsh corgi Pembroke red white color with a long tail grazing sheep. Sports standard for dogs on the presence of herding instinct. A beautiful and intelligent little shepherd dog.

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 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 barks at the UPS truck. As you might have guessed, I cannot claim my dog as a business expense.  Her service to my company is neither regular, nor necessary.  

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.  I know a dog that used to star in the dog program at Busch Gardens, that’s a legitimate working dog.

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.  If you purchase a puppy—with the intent of breeding it when it grows up, you can’t write it off yet. You can’t breed a puppy so it’s not working yet.

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.

Don’t be greedy! Only claim legitimate business expenses. If you own 4 dogs and 2 of them are pets, you can’t write off the dog food and vet expenses for the non-working dogs.

Obey your state and city laws! If you’re claiming a dog breeding business on your federal tax return, and you live in a city that doesn’t allow dog breeding, you’re going to have some explaining to do. That’s one of the rules for owning a business – know your state and local business laws. So do your homework.

Remember, if your dog is a pet, let it be a pet and don’t try to write it off on your tax return.

For more information check out this article from the AKC web-site: Tax Tips for Dog Breeders

Posted on by Jan Roberg

Depreciating a Bitch

Dog breeders - You are entitled to certain deductions that many others are not qualified for. Get the deductions you deserve and maximize your tax benefits. Photo by Mike Bitzenhofer at Flickr.com

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First and foremost, we’re talking about dogs here.

I’m often asked by dog breeders about how to write off the cost of purchasing a dog for breeding purposes.   If you are planning on going into the business of breeding dogs, then your dogs are livestock and would fall into the same rules as farm animals.

 

Depreciation for a dog begins when the dog reaches maturity.  If you buy a puppy for breeding, depreciation begins when the dog can be bred.  If you purchase a dog for working, (such as herding or security) depreciation begins when the dog can actually be worked.

 

You cannot buy a puppy and write off the entire cost because you say that you intend to breed it.  You must actually be breeding the dog to claim an expense.

 

How long do you depreciate a dog for?

Because dogs are not specifically listed in the IRS depreciation tables, the timeline on depreciating a dog is seven years.

 

Can I just write off the whole cost the year I start breeding?

Yes, that would be called a Section 179 Expense deduction.  But there’s a catch with claiming a Section 179 expense deduction that most people don’t know or forget about.  Remember, dogs are depreciated over seven years.  If you write off the entire cost of the dog the first year of breeding, but then you quit breeding your dog—you’re required to “recapture” any remaining depreciation.

 

What does recapture mean?

Well, let’s say your dog cost $2,000 and you claimed the full expense the year you start breeding her.  After two years, you decide it’s not worth it and you have her spayed.  You only got two years of breeding from the dog, so you have 5 years of depreciation that you have to reclaim.

 

If you used the MACRS depreciation schedule, you would have claimed $286 the first year and $486 the second year for depreciation.  That makes a total of $772.  To reclaim the Section 179 expense, that means that you would subtract the depreciation you could have claimed from the $2000 that you wrote off before and you’d have to claim the $1,228 left as income.

 

Yes, it does stink, but that’s the rule.  And remember—a dog breeding business is a more likely candidate for an audit than most other businesses so you’re going to want to maintain your books nice and tight.

 

A few other points about dogs as business property:

  1. If you buy dogs to resell, that’s considered inventory and you don’t expense them until you actually sell them.

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  2. If you buy a dog for breeding, and then sell the dog later, you have to reclaim the depreciation as ordinary income.  Example:  buy dog for $2000, claim section 179 expense of $2000, sell dog for $3000, you would claim $3000 as ordinary income.

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  3. You may purchase a breeding dog and choose not to depreciate the dog, just keep the dog as an investment.  When you sell the dog, the profit is taxed at capital gains rate instead of ordinary income (which is a lower tax rate.)  Example:  dog costs $2000, sold for $3,000, only $1,000 of income is realized and would be taxed at lower capital gain rate.

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There’s a lot here to think about.  Don’t go trying to claim the cost of your dog on your tax return unless you truly are in a dog business.  Expensing a dog is going to be a red flag for an audit—so dot your “I”s and cross your “T”s and make sure you’ve done all your homework.

 

If you do plan on depreciating your dog, click here to get my handy dog depreciation schedule to help you figure your expenses.