Tax Deductions for Cats and Dogs
At the end of July 2009, Representative Thaddeus McCotter introduced the HAPPY Act (Humanity and Pets Partnered Through the Years) bill. The bill aimed at allowing for a tax deduction up to 3,500 per year for pet-related expenses. The status of the bill as of the date of this publication: “Referred to House Committee on Ways and Means.” Assumedly this is not the top priority of the House of Representatives, you might have a difference of opinion on that.
So what kind of pet- and animal-related expenses are tax deductible?
Our pets are near and dear to us. Some may consider our cat or dog worth its weight in gold (this is a figure of speech). But, did you know that pet-related expenses are, in certain circumstances, eligible for tax deductions. For instance, when relocating, a pet owner can file for a tax deduction specifically for the expenses incurred in relocating a family pet, in tax law in this circumstance, a pet can be considered a personal effect, and therein Mittens or Spot is treated as such.
A business might be able to deduct for the expenses of keeping a guard dog. Or a volunteer host of a therapy animal, such as a guide dog, might be able to deduct the veterinarian bills, and other such unreimbursed expenses (considered charitable donations). There have also been court rulings that have favored tax deductions for expenses related to caring for animals that serve visually-impaired, hearing-impaired, and physically-impaired individuals. There are also tax deductions in expenses related to the care of animals in an animal-breeding business.
The Cat Lady Case—Van Dunsen vs Commissioner
In 2004, Ms. Van Dusen shared her living space with 70 – 80 cats (7 of which she considered personal pets). She was a volunteer for a charitable organization (named “Fix our Ferals”) with the primary aim of neutering feral cats. The volunteer deducted $12,068 on her tax return. The IRS argued that the woman was rescuing cats on her own rather than incurring expenses as a volunteer for a charity. The tax court rejected this argument. The tax court did agree with the IRS, however, that many of the expenses (State Bar dues, DMV fees, Costco membership dues, and wet/dry vacuum repair cost) did not constitute an exclusively charitable expense.
Finally, all individual expenses that exceeded $250 were disallowed because Ms. Van Dusen did not have the required documentation for such charitable donations (i.e. a contemporaneous written acknowledgment from the donee organization.) For the deduction to be allowable, the donee must file a return with the IRS reporting the information that would be included in the written acknowledgment, such as: 1) the amount of cash contributed; 2) a description and good-faith estimate of any goods or services received in exchange; and 3) if the donee provides any intangible religious benefits, a statement to that effect). If you want to deduct the expenses for your 70 cats, make sure you are acting on behalf of an appropriate charitable organization and make sure you get the required documentation.
A subsequent trial regarding animal abuse charges against Van Dusen followed her victory over the IRS. It was considered a mistrial and thrown out by the judge due to a hung jury, but is it is probable it occurred in the first place due to the IRS trial. Generally speaking, it is advisable to avoid Van Dusen’s situation with the IRS.
How do I differentiate between tax deductible and non-tax deductible animal care-related expenses?
So you see there are possibilities for tax deductions related to the expenses incurred by care of pets and animals. And there are instances where these expenses are non-tax deductible. If you are considering a tax deduction related to the expenses of caring for pets or animals, seek the counsel of a CPA (certified public accountant). Don’t assume that just because your neighbor owns twenty cats, she can provide you informed pet-related tax deduction information and counsel.
In one bizarre instance, a landscaper attempted to deduct for the expenses of caring for a dog that helped him pull a wagon at work—presumably without the counsel of his tax accountant. This awarded the landscaper an audit. We can assume that this caused some working-relations strain, but we cannot verify this. Nor is it likely that either dog or boss will go on the record anytime soon.
Huddleston CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.
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