Don't Mess With Taxes

“Oh, yeah. That’s the spot,” seems to be what this Chow Chow is thinking as he’s getting a neck rub from his owner. (Photo by Omid Armin on Unsplash)

Happy National Dog Day! Or, for canine lovers, the 239th day of Dog Year 2024.

Personally, I’m a cat fan. But many of my relatives are pooch parents. And let’s be honest, whatever creature you choose to welcome into your home, the animals are part of your family.

So, we should be able to claim them as dependents, right? Sorry, but wrong. The Internal Revenue Service probably is full of pet owners (or vice versa, speaking as a cat person), but the tax code says no, pets cannot be claimed as tax dependents. That designation, and related tax benefits, are reserved for our human children.

However, you may be able to claim, in specific situations, certain pet-related expenses to lower your tax liability. The key is to know the special circumstances that apply.

Here are five instances where a domestic animal might help its tax-paying humans keep a bit of money out of Uncle Sam’s hands.

1. The animal serves a medical purpose. It's no secret that pets provide us comfort. If you've been diagnosed with a physical or mental condition that benefits from the attention of a trained therapy animal, that pet's costs could count as an itemized medical expense.

Note that this is beyond just your animal's knowing when you need some extra snuggling after a tough day at work. Your animal must be a documented Emotional Support Animal (ESA). A physician's diagnosis and recommendation, in writing, are required. Even then, don't be surprised if an IRS examiner has some follow-up questions after your file.

Animals that help you deal with a physical disability are more obvious and easier to claim tax breaks.

IRS Publication 502 says that if you need a guide dog, either to compensate for your reduced vision or hearing, you can include the costs of buying, training, and maintaining that animal in your overall deductible medical expenses tally.

This generally includes such things as the animal's food, grooming and veterinary care to keep it healthy enough to help you.

If you have a pet insurance policy to help with these costs, those premiums count, too. But in this case, don’t double dip. Count only the pet protection portion you pay out-of-pocket, like deductible amounts or co-pays, among your animal expenses.

2. The animal works for you. If you have a guard dog to keep your business safe after regular retail hours, that animal's work-related costs could be claimed as business deductions.

The tax code's standard business deduction rules still apply, notably that the animal's costs are ordinary and necessary in your line of business.

Once you show that your pet is indeed helping your business succeed, then the money you spend — food, vet bills and training — are deductible as a business expense.

To do that, be sure to follow the cardinal tax rule of keeping good records. Track your animal's hours on the job, as well as all related work expenses. Also note that your guard dog will be treated as business property, meaning his or her value must be depreciated.

Finally, you have a better chance of not raising IRS eyebrows if you choose an animal that fits the real job requirements. So, you shouldn't claim your Yorkshire Terrier is your warehouse's guard dog, even though she is overly protective of you and does yap all the time.

And no, while bodega cats are commonplace, they likely won't pass tax deduction muster as shop guardians. 

3. The animal has another job. Some of my favorite (not-tax) accounts on social media are those that feature, beyond bodegas, cats with jobs. Yes, they are fake jobs. We all know that we work for felines, not the other way around.

But in situations where your pet's performances earn you money, the animal's expenses could be claimed as a business expense.

This could be a legitimate tax consideration when your amazingly cute (or Grumpy Cat) pet is paid to appear in commercials, television programs, movies, or print advertisements.

OK, there are only so many Eddies (from the original Frasier) or Crystals (from the Apple+ streamer Bad Monkey). But many people find that their pet is the real star, and money-making audience driver, of their Instagram account or YouTube channel.

In all performing animal cases, keep accurate records of the activity that earns income and every expense related to ensuring your pet performs optimally.

4. The animal's costs are related to a charity. If you foster animals while your local nonprofit shelter works to get them new homes, you costs could be deductible as an itemized charitable expense.

Costs that count are the usual expenses, like pet food, supplies, and veterinary bills. But you also can deduct 14 cents per mile for trips made to further the shelter's work.

Again, record keeping is key. A California woman lost some of her cat care deductions because she didn't have all the IRS-required receipts, specifically for pet-care items costing $250 or more. She also failed to get a letter from the 501(c)(3) charity acknowledging her volunteer work.

5. The animal moves with you. Of course you took your pets with you when you moved. But the big dogs needed special transport for the cross-country trip.

Your pet's transportation is a deductible moving expense. However, there is one major caveat.

The Tax Cuts and Jobs Act of 2017 limited the tax break for relocations costs, both of humans and animals. Moving costs, for you and your pets, now can only be claimed if you are a member of the U.S. military is relocating per official deployment orders.

I know, your pet is much more to you than a tax break. But I'm sure your devoted animal companion wouldn't mind if you were able to also get some tax benefits, too.

Such consideration is just one more way our pets show us their unconditional love. Plus, they know we’re likely to spend any extra disposable income on treats for them!

You also might find these items of interest:

• 7 tips to ensure your pets' safety during a disaster
• Animal food banks can help with pets' Thanksgiving feasts
• Pets potpourri: holiday presents, scams, & animal tax breaks

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