It’s not unusual for pet owners to consider their domesticated animals as members of the family.
The IRS disagrees. That’s why the taxman won’t let you claim your dog, cat, guinea pig or whatever critter brightens up your life as a dependent.
Market research by the American Pet Products Association found that U.S. pet owners spent a record-breaking $72.56 billion on their animals in 2018.
Many of those dollars go each year to veterinarians. But again, the IRS says “no” at tax time. You generally can’t count those bills as itemized medical deductions.
However, the Internal Revenue Code does allow a few instances where you can write off some pet costs.
When you put a pet to work, you may be able to deduct business expenses. And if your love for animals translates philanthropically, you can probably write that off, too.
Here’s a closer look at these five pet-related tax write-offs.
1. Medical deduction
Because of the higher standard deduction created by the Tax Cuts and Jobs Act of 2017, medical expenses have gotten harder to claim. For the 2019 tax year, your health care costs must exceed 10 percent of your adjusted gross income. For the 2017 and 2018 tax year, this threshold was lowered to 7.5 percent of AGI.
It sure would be nice if you could add in your furry pet’s veterinary charges. Sorry, that’s not going to happen. But the IRS does say in Publication 502 that if you need a guide dog to compensate for your reduced vision or hearing, you can include the costs of buying, training and maintaining that animal in medical expenses.
In general, this includes such things as food, grooming and veterinary care that is necessary to make sure the animal is healthy enough to perform its assistance duties.
If you’ve been diagnosed with a physical or mental condition that benefits from the attention of a trained therapy animal, those costs also count as a medical expense.
Note, however, this doesn’t cover your loving cat that comforts you when he curls up in your lap. The animal must be trained or certified as treatment for a diagnosed illness or condition for the IRS to approve the deduction.
2. Business animals
That “beware of dog” sign in your business’s window is no idle threat. Break-ins have stopped since you set up a place for your Rottweiler to stay overnight.
In this case, the IRS would likely be amenable to business deduction claims of the animal’s work-related expenses.
Standard business deduction rules still apply, notably that the cost of keeping an animal on work premises is ordinary and necessary in your line of business. Once you show that, the dollars spent each year keeping your pooch in good guard condition — food, vet bills and training — would be deductible as a business expense.
As with all deductions, be prepared to provide full and accurate records of your animal’s hours on the job. You’ll also find your tax claim more acceptable when you demonstrate how the animal protects your livelihood’s inventory.
Keep in mind, too, that your claims carry more weight when your pet is a breed that’s typically used for such jobs. So even though your Chihuahua has a loud bark, your tax claim is more credible if your guard dog is a German Shepherd, Doberman Pinscher or a similar imposing breed.
3. Change hobby to for-profit business
You posted some exceptionally cute dog videos on YouTube and managed to attract a following, along with some ad revenues. You might consider this a hobby, but hobby expenses are no longer deductible, thanks to the Tax Cuts and Jobs Act of 2017.
Before the tax law went into effect, you could deduct your hobby’s expenses to offset any hobby earnings. However, those expenses were considered a miscellaneous deduction, which could only be used if they exceeded 2 percent of your adjusted gross income. But with the disappearance of miscellaneous deductions, hobby expenses are no longer deductible.
However, if you turn your fun pastime into a for-profit business, you can deduct your legitimate business expenses, even if the business is often a money loser. Generally, to escape unwanted attention from the IRS, your business earnings should exceed expenses for three out of five years. But even if they don’t, you can prove that you’re trying to make a go of your business by:
- Keeping good records.
- Researching profit-making opportunities.
- Having expertise in the area or hiring an expert.
- Spending enough time at it to justify it as a business activity.
- Showing a track record of success in other ventures.
- Creating large profits from time to time and attributing losses to unusual events.
4. Charitable deductions
You got your cat from a shelter, where she was dropped off by a previous owner who couldn’t care for her any longer. If no one had adopted her, she might have faced euthanasia.
Such rescue animals hold a special place in your heart. And besides donating to these animal-shelter nonprofits, you also volunteer your time.
Be sure to keep track of your pet protection expenses. They could count as a charitable donation.
Unreimbursed expenses for fostering a pet for an IRS qualified 501(c)(3) adoption organization can be deducted. This includes the usual costs for pet food, supplies and veterinary bills. You can also deduct 14 cents per mile for trips made to further the shelter’s work.
Add up the costs, along with direct donations to a rescue group, and itemize them under the charity section of Schedule A. Of course, you first have to determine if your itemized deductions exceed the standard deduction amount before deciding to itemize.
Make sure, though, that you keep good records. In 2011, an Oakland, California, woman won a tax court judgment that allowed her to claim many cat rescue expenses on her 2004 tax return, including the usual care costs, a portion of her utility bills and even such things as paper towels and garbage bags.
But her $12,068 deduction was reduced because she didn’t have all the related receipts, especially for items costing $250 or more. She also lacked a valid letter from the feline charity acknowledging her volunteer work.
5. Pet trusts
Pets sometimes live longer than their owners. Many pet owners include their pets in their wills. Others opt to establish trusts for their pets’ care.
Texas Tech University School of Law professor Gerry W. Beyer specializes in estates, wills and trusts. Since he wrote his first legal article on pet trusts 18 years ago, Beyer has seen the field go from an obscure legal move that very few folks talked about to a “pretty well-accepted” part of estate planning.
All states have laws that allow for pet trusts, says Beyer.
You don’t have to be wealthy to set up a pet trust. Beyer does advise, though, working with an attorney who specializes in these types of legal final wishes.
And note that a trust doesn’t mean zero tax concerns. Beyer says that depending on how the trust is structured, the responsible tax party could be the pet owner in the case of a living trust; the trust beneficiary, who typically is the pet’s caregiver; or the trust itself.
Still, a trust is a dependable way to ensure your pet gets the care you want the animal to have after you’re gone. “You get certainty,” says Beyer.