Businesses such as a clinical private practice or a healing and wellness businesses may use animals in as part of the services they offer. If you are thinking using an animal in your business this post will examine what if any expenses may be deductible on your IRS tax return.
The rules for deductibility of general business expenses is explained below and applied in theory to costs associated with a business animal. If you have an animal you use or plan to use as part of your business, it will be important to also have a discussion with your tax preparer
and ensure you and your tax preparer are on the same page regarding deductibility of costs and documentation to be retained.
Your specific circumstance may differ from the examples below and these examples do not guarantee it is correct and appropriate to take a deduction in every case.
Ordinary and necessary
"An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary."
Therefore, for an animal expense to be deductible it needs to be something that is accepted in your industry. It also needs to somehow relate to the services you provide and how you earn money in your business. It is not sufficient to have the animal physically present in your office, there needs to be a business purpose.
In the field of psychology, providers have long used animals for exposure therapy and to manage or heal a number of psychological problems. If you are in another type of industry, look online and speak to other professionals like yourself to see if there is a commonly accepted use of animals among similar business types.
Personal vs. business expenses
The IRS does not allow deduction for personal costs as business expenses. IRS Publication 535
"Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part."
If you are using an animal to generate business revenue, first ask yourself if this is also a personal pet. If you use a spider for exposure therapy and the spider lives full time in your office, then you can justify that this is not a personal pet and is used solely as a business animal. If you use a horse in the process of equine therapy, and the horse is kept at a stable, you do not ride the horse for pleasure or enter into competitions for personal reasons, you may also be able to justify 100% business use of the animal.
However, if you use a therapy dog in your clinical private practice and the dog lives at home with you and your family when you are not working, it is likely the costs related to the dog will need to be divided between personal living costs and business related costs. It is likely a dog will go home with you in the evening and be part of your family life.
Splitting costs personal vs. business
If you have determined your new animal is part business partner and part personal pet, the next step is to decide what portion of the time this animal will be working versus not working. You can establish this in a number of ways, including number of working days compared to nonworking days or number of working hours compared to hours spent not working. Find a reasonable basis that shows you put thought into the determination and are not trying to stretch reality to get a larger deduction.
If you have examined your practice related to your business animal and have determined for example that your new dog will be spending 30% of its time in the office as a therapy dog and 70% of its time at home with you, then it would be appropriate to deduct 30% of the shared costs related to the dog as a business expense.
Vet bills and costs for food and treats would be costs that are shared and need to be split between personal and business. These costs could happen every day or periodically, and aren't specifically associated with working versus nonworking times. A leash is another example of a cost that is associate with the dog, as it may go everywhere the dog goes, and would be partially deductible. Therefore, if you buy a bag of food, get a health checkup or buy a dog coat that will be worn at home and work, using our split above you would deduct 30% of the costs.
Other costs are specifically related to either home or office. If you purchase a dog bed that is used exclusively at work and stays there, you can deduct 100% of the cost as that dog bed would not have been purchased but for the need to have a space for the dog to lie down in the office. Likewise, if you buy a food bowl that will only be used at home, that costs is not a business deduction as it is only used at home.
If you incurred an extra expenses in getting the animal, such as training to be a therapy dog or extra cost to get a particular breed of dog that is suited to the work you will be doing, that cost may be viewed as fully related to the business and therefore 100% deductible. Be reasonable in making these assessments. You only want to deduct a cost that has a legitimate connection to your business operations.
If you are an owner of an S-Corp you are an employee of your business and need an accountable plan to be able to be reimbursed tax-free for any business related expenses you incur personally. The business can pay for its own expenses but if it reimburses you the owner, there needs to be an accountable plan in place. This is true for employees of any business, an accountable plan is required for employee reimbursements to be non-taxable and excluded from wages. Talk to your accountant to set up an accountable plan if you have employees or are an employee of your own business.
Good records are needed for all business deductions. For a business animal this means pet store receipts, vet receipts and documentation for any other costs incurred. It is also wise to include on your website and in your marketing that you have an animal used for business and how that animal is business related. This will demonstrate that you are not simply having your pet hang out in your office in order to get a business deduction.
You are permitted to deduct ordinary and necessary expenses and where you have an expense that is partly personal and partly for business, you can deduct the business portion. Thought and consideration is required to establish which portion of animal expenses are legitimately related to your business operations. Care is also needed in keeping adequate records for your business deductions. With careful planning, a business animal can be a valued business partner and a business deduction.
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