Are Your Dog's Expenses Deductible?

Q. I show my dog at dog shows, and sometimes he wins money. If I have to declare it as income, can I deduct things like dog food and vet bills? — Owner

A. You have to prove that this is a business and not just a hobby.

If you are in a business of training dogs for dog shows, then any expenses related to the business would be tax deductible, said Ken Bagner, a certified public accountant with Sobel and Co. in Livingston, New Jersey.

He said the burden of proof falls on you to show the IRS that you are not conducting a hobby and are actually involved in a business.

Bagner said you may consider setting up a separate business entity, such as a Limited Liability Company (LLC) or an S Corp., to help demonstrate you are conducting a business.

“If it is deemed a hobby and not a business, the income will be taxable and expenses can only be deducted up to the amount of income for the year,” Bagner said. “In addition, the expenses would be have to be listed as miscellaneous itemized deductions on schedule A.”

These deductions have to be over 2% of your adjusted gross income before you can take a deduction, and if you are into the Alternative Minimum Tax, the itemized deductions will not be deductible, he said.

“If you can prove you are in a business, then you can deduct all ordinary and necessary expenses in the business under the IRS code,” he said. “This may include dog food, vet bills, travel expenses and any other expenditures related to the business.”

[Editor’s Note: Remember, it can be tempting to overspend on pets, but, whether for business or as a hobby, you’ll want to be sure you can afford whatever you’re buying for Fido. Otherwise, you risk busting your budget or even going into credit card debt and hurting your credit scores. If you already have credit card debt, you may be able to pay it down more swiftly by prioritizing payments by making minimum payments on all your cards, while putting extra funds towards either the card with the highest interest rate or lowest balance, reviewing your budget for places you can cut back and looking into a balance transfer credit card or debt consolidation loan. You can see how your spending may be affecting your credit by pulling your credit reports for free each year at AnnualCreditReport.com and viewing two of your scores, updated every 14 days, for free on Credit.com.]

Image: Richard Paul