Can You Claim Animal Expenses on Your Taxes?

Can You Claim Animal Expenses on Your Taxes?
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Pets can cost a bundle, but the Internal Revenue Service doesn't consider them dependents and you can't write off their expenses. Generally speaking, Fido will probably offer you a lot more in the way of companionship than in tax breaks. Exceptions do exist, however, and you can sometimes claim the costs of maintaining animals, depending on why you're doing so.

Hobby Deduction

The IRS allows you to write off costs associated with hobbies, but you'd probably have a hard time proving that ownership of your Siamese is a hobby. If you have four cats, however, and if you breed them then sell the kittens, you may be able to deduct the costs. The catch is that you must also claim any income your hobby produces, and your deduction can't exceed this amount. For example, if your kitten sales add up to $5,000 over the year, and if you spent $10,000 breeding your cats and caring for them, you can only deduct $5,000 of those costs. You must also itemize to claim this deduction and it falls into the miscellaneous category. This means your deduction must exceed 2 percent of your adjusted gross income and you can only deduct the balance.

Business Expenses

According to the IRS, the difference between a hobby and a business is whether you pursue the interest with the expectation of earning money. If so, you can deduct costs associated with your animals without itemizing or worrying about the 2 percent threshold – even if they don't bring in any money in a given year. You can suffer two years of losses out of every five, or two out of seven if your animals are horses, and claim your business losses. You can sometimes get around this rule if you're careful to treat your hobby as a business, such as by maintaining records, advertising, networking, and through the amount of time and diligence you devote to the pastime. If you can show that your hobby and your animals are a business, you can file Schedule C with your tax return instead of itemizing. If your business loses money that year, the loss can offset other income.

Service Animals

You can also claim expenses if your animal serves a useful purpose. All costs of seeing eye dogs – or any other animal who aids a handicapped individual – are deductible, from the cost of the animal itself to food, veterinary expenses and even training expenses. The IRS assumes that a watchdog is also a pet if it's guarding your home, so these costs are personal and not deductible. If it protects your business, however, and particularly your inventory, the associated costs may be deductible. You can't deduct the initial cost of a guard animal, but you can depreciate the purchase over the animal's anticipated lifetime.

Audit Risks

Claiming unusual deductions can sometimes trigger an IRS audit, so you might want to compare what you stand to lose against how much you can possibly gain by taking animal deductions. If your income from your animals runs about even with your deducted costs, the IRS may not take a closer look at your return. If, however, you claim a loss of $50,000 and try to write off your entire earned income by filing Schedule C, you might risk an audit. The IRS is also more likely to agree that your enterprise is a business if you work at it full-time – although this isn't to say you can't have another part-time job on the side.