Congress's intent is not to tax your gross income. The authors of the tax code recognize that people have legitimate and necessary expenses of various kinds. The IRS, therefore, allows a wide variety of deductions for necessary expenses and for expenses that Congress wants to encourage. Those who are dependent on service animals, for instance, have specific expenses most taxpayers don't incur, through no fault of their own. Congress, through the IRS, has developed specific rules for the tax treatment of these animals, and other animals used for the production of income.
General Rule
The IRS does allow you to deduct certain kinds of expenses from your income on your personal tax return. These are called "itemized deductions." Miscellaneous itemized deductions are deductible to the extent that they exceed 2 percent of your adjusted gross income. However, they are disallowed for those subject to the alternative minimum tax. Medical expenses are normally deductible to the extent they exceed 7.5 percent of your modified adjusted gross income. For those subject to the alternative minimum tax, that threshold is increased to 10 percent.
Personal Versus Business Expenses
The IRS differentiates between personal and business expenses when it comes to determining deductibility. Some items are deductible when the expense is incurred for business purposes but not deductible when the same expense is for personal reasons. For example, attorney fees to defend you and your business from a lawsuit are generally deductible; attorney fees to defend yourself against a criminal charge are not. Personal pet expenses are not a tax deduction. And no, the IRS won't let you claim a pet as a dependent.
Service Animals
There is an exception to the rule against the deductibility of pet expenses. If you or a dependent has a medical need for a service animal, such as a Seeing Eye dog, you can claim expenses related to the acquisition, training and upkeep of that service animal. To qualify for the deduction, the animal must be kept for the purpose of mitigating a specific medical diagnosis.
Livestock
While personal pet expenses are not tax deductible, you can deduct the costs of acquiring and caring for animals if you use the animals to produce income. Livestock costs, including feed costs, are tax deductible as a business expense. Use Schedule F to deduct business costs associated with farming and ranching, and file it with your Form 1040. Since livestock is perishable, you can also deduct for the depreciation of livestock. For more information on taxes for farmers, refer to IRS Publication 225, Farmer's Tax Guide (see Resources).
Tags: gross income, adjusted gross, adjusted gross income, alternative minimum, attorney fees, attorney fees defend