Tax Tip: Deduct Your Pet

In my 39 tax seasons I have had clients wanting to deduct the strangest things. Usually it is something they heard from a relative, friend, neighbor or a guy that rides the train to work with them. And it seems that just about every workplace has a self-proclaimed “tax pro.”

This is why, as I mentioned in one of my first columns here at MainStreet, perhaps the best tax advice I can give anyone is — Do not accept tax advice from anyone other than a professional tax preparer. Don’t listen to a broker, a banker, an insurance salesman or your Uncle Charlie.

Many clients ask me, for the most part jokingly, if they can claim their cat or dog. As a cat owner for most of my adult life I am certainly aware of the cost of keeping a pet. I usually reply by telling them that to do so they must turn their pet into a Morris (the 9-lives cat) or Moose (he played Eddie the dog on Frasier).

However, there are occasions when expenses related to a cat, dog or other animal are deductible.

For example, the tax court allowed a business to claim a $300 deduction for cat food used to attract wild cats in order to prevent snakes and rats from coming into the business’s scrap yard.

Similarly, a business owner may be able to deduct the cost of a guard dog. You can only deduct that portion of Fido’s total time devoted to 'guard-dog' duty. You can deduct expenses relating to the dog, but you cannot deduct the dog itself, although you can depreciate it over its expected lifespan as determined by a local breeder.

The wife of a former colleague of mine is raising a puppy for an organization called The Seeing Eye. The puppy is delivered at about 6 weeks and stays with the host family until it reaches 12-15 months of age, at which time it is returned to The Seeing Eye for the appropriate training to become a Guide Dog. Fees paid to a veterinarian are reimbursed by the Seeing Eye. However, dog food, toys and travel are not reimbursed in full.

The Seeing Eye is a qualified nonprofit charitable organization. The purpose of the organization is to raise and train Seeing Eye dogs for use by the blind. The volunteer taxpayer is not taking in the dog to be the family pet — but as a true volunteer service to the organization. The taxpayer is required to begin the puppy’s socialization training and to return the dog when it is old enough for more specialized training.

All unreimbursed expenses incurred by the host family as they relate to raising the puppy (dog food, veterinary bills, gas mileage, etc.) are considered a donation to The Seeing Eye and are deductible as a charitable contribution.

According to the IRS Publication 502, "You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually-impaired or hearing-impaired person, or a person with other physical disabilities.”

So when the guide dog is placed with a blind person, that person can deduct in full, as a medical expense (subject to the 7.5% of AGI exclusion) all the costs associated with the dog (i.e food and vet bills).

An IRS Private Letter Ruling stated that deductions are allowed for a cat that, in effect, served as a hearing aid for a person with a severe hearing impairment. The animal was trained to react to noise in ''an instantaneous and directional manner." Various IRS and tax court rulings have upheld deductions concerning assistance and help rendered by an animal (not limited to cats or dogs) in alleviating the effects of a handicapped person.

If you move because of a new job and your moving expenses qualify for a tax deduction you can include the cost of moving your cat, dog, bird or any other pet from your old residence to your new home.

Last summer, U.S. Rep. Thaddeus McCotter introduced the Humanity and Pets Partnered Through the Years Act (HR 3501), aka the HAPPY Act, which would allow taxpayers to deduct up to $3,500 per year for the expenses, including vet bills, of legally owned pets. The bill was referred to the House Committee on Ways and Means, but no action has been taken on it yet.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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