Every pet owner claims their animal is a member of the family and they are an essential companion for thousands of long-haul truckers. In fact, prior to 1987 when the IRS first required dependent Social Security Numbers it was not uncommon for taxpayers to claim their pets as dependents. With U.S. pet owners spending an estimated $60 billion in 2015 on their animals it understandable that taxpayers may want to recoup some of their pet expenses with a creative medical expense tax deduction[i]. To counter the urge to claim Fido as a tax deduction the IRS has promulgated guidance on what type of animals qualify.

Whether Fido is a Service Animal, Emotional Support Animal or Guard Dog in accordance with IRS regulations is critical in determining the deductibility of pet-related expenses.

Note: I found dozens of websites pitching “Service Animal” registration services; all with variations on what disabilities qualified for the tax-deductible classification. My purpose is to analyze the tax implications and not to evaluate the merits of the service animal designation. Therefore, the below discussion (where applicable) uses definitions under the Americans With Disabilities Act (ADA).

Service Dog:

Under the ADA, a service animal is defined as a dog that has been individually trained to do work or perform tasks for an individual with a disability.  The task(s) performed by the dog must be directly related to the person's disability.

  • The expenses associated with a Service Dog are likely deductible as a medical expense.

Emotional Support Dog:

Emotional support, therapy, comfort, or companion animals are not considered service animals under the ADA. The types of emotional conditions that may require the assistance of an ESD are PTSD, anxiety and depression.

  • The expenses associated with an Emotional Support Dog are likely not deductible as a medical expense.

Guard Dog:

There is scant guidance on the deductibility of guard dogs, however, it is clear they do not meet the statutory requirement to qualify under Internal Revenue Code 213.

  • The expenses associated with a Guard Dog may be deductible to a business but not as a medical expense.
  • An individual taxpayer cannot claim a Guard Dog as a deductible medical expense.

Tax Law Discussion:

Whether the costs of buying, training, and maintaining a service animal to assist individuals with mental health disabilities qualify for the medical expense deduction under § 213 of the Internal Revenue Code. The costs of buying, training, and maintaining a service animal to assist an individual with mental disabilities may qualify as medical care if the taxpayer can establish that the taxpayer is using the service animal primarily for medical care to alleviate a mental defect or illness and that the taxpayer would not have paid the expenses but for the disease or illness.

IRS Chief Counsel Note:

A taxpayer who claims that an expense of a peculiarly personal nature is primarily for medical care must establish that fact. The courts have looked toward objective factors to determine whether an otherwise personal expense is for medical care:

  • the taxpayer’s motive or purpose for making the expenditure,
  • whether a physician has diagnosed a medical condition and recommended the item as treatment or mitigation,
  • linkage between the treatment and the illness, treatment effectiveness, and proximity in time to the onset or recurrence of a disease. Havey v. Commissioner, 12 T.C. 409 (1949).
  • The taxpayer also must establish that the expense would not have been paid “but for” the disease or illness.

A personal expense is not deductible as medical care if the taxpayer would have paid the expense even in the absence of a medical condition. Commissioner v. Jacobs, 62 T.C. 813 (1974). [ii]

IRS Guidance: Guide Dog or Other Service Animals[iii]
How Much of the Expenses Can You Deduct?

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 disabled person, or a person with other physical disabilities. In general, this includes any costs, such as food, grooming, and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties.

Where to claim the deduction?

Generally, you can deduct on Schedule A, Itemized Deductions (Form 1040) only the amount of your medical and dental expenses that is more than 7.5% of your adjusted gross income (AGI). However, with tax reform drastically increasing the Standard Deduction ($12,000 Single, $24,000 Married) most taxpayers will not have sufficient itemized deductions to warrant pursuing a tax break for their pet expenses.

  • Example:
    • AGI of $50,000
    • You spent $10,000 on service animal expenses
    • 7.5% of $50,000 = $3,750
    • $10,000 - $3,750 = $6,250 deduction for service animal related expenses
  • A business cannot claim a deduction for a guide dog or other service animal.
What is the IRS definition of a Service Dog?

The IRS does not offer a definition, but guidance can be gleaned from the Americans With Disability Act (ADA). Under the ADA, a service animal is defined as a dog that has been individually trained to do work or perform tasks for an individual with a disability.  The task(s) performed by the dog must be directly related to the person's disability.

  • Hearing Dogs– Alert the deaf to different sounds, alarms, etc.
  • Guide Dogs– Used by those that are visually impaired to help them navigate around obstacles, through a crowd, etc.
  • Mobility Dogs– Provides support and does tasks for those with limited mobility or with balance issues.
  • Psychiatric Service Dogs – Provides support for invisible mental illnesses. These dogs alert or calm their owners in need.
  • Medical Alert Dogs – Alerts their owners before an attack, seizure, or drop in blood sugar.[iv]
What does "do work or perform tasks" mean?

The dog must be trained to take a specific action when needed to assist the person with a disability. For example, a person with diabetes may have a dog that is trained to alert him when his blood sugar reaches high or low levels. A person with depression may have a dog that is trained to remind her to take her medication. Or, a person who has epilepsy may have a dog that is trained to detect the onset of a seizure and then help the person remain safe during the seizure.

Are emotional support, therapy, comfort, or companion animals considered service animals under the ADA?

No.  These terms are used to describe animals that provide comfort just by being with a person.  Because they have not been trained to perform a specific job or task, they do not qualify as service animals under the ADA.

If someone's dog calms them when having an anxiety attack, does this qualify it as a service animal?

It depends. The ADA makes a distinction between psychiatric service animals and emotional support animals. If the dog has been trained to sense that an anxiety attack is about to happen and take a specific action to help avoid the attack or lessen its impact, that would qualify as a service animal. However, if the dog's mere presence provides comfort, that would not be considered a service animal under the ADA.

Does the ADA require service animals to be professionally trained?

No. People with disabilities have the right to train the dog themselves and are not required to use a professional service dog training program.

 Can service animals be any breed of dog?

Yes.  The ADA does not restrict the type of dog breeds that can be service animals.

Can a business deduct the expenses associated with a Guard Dog?

The absence of specific guidance from IRS compels a taxpayer to evaluate the appropriateness of claiming a tax deduction for expenses related to a guard dog used to protect a truck that is constantly on the move as opposed to a drop-yard or terminal. Kay Bell writing for Bankrate.com provided a great analysis,

That “Beware of dog” sign in your business’s window is no idle threat. Break-ins have stopped since you set up a place for your Rottweiler to stay overnight. In this case, the IRS would likely be amenable to business deduction claims of the animal’s work-related expenses.

Standard business deduction rules still apply, notably that the cost of keeping an animal on work premises is ordinary and necessary in your line of business. Once you show that, the dollars spent each year keeping your pooch in good guard condition — food, vet bills and training — would be deductible as a business expense.

As with all deductions, be prepared to provide full and accurate records of your animal’s hours on the job. You’ll also find your tax claim more acceptable when you demonstrate how the animal protects your livelihood’s inventory. In addition, as is often the case with business property, the dog must be depreciated, a way of allocating its cost over its useful life for IRS purposes.

Keep in mind, too, that your claims carry more weight when your pet is a breed that’s typically used for such jobs. So even though your Chihuahua has a loud bark, your tax claim is more credible if your guard dog is a German shepherd, Doberman pinscher or a similar imposing breed”.[v]

Every pet owner claims their animal is a member of the family and an essential companion for thousands of long-haul truckers. The IRS disagrees. It understandable that taxpayers may want to recoup some of their pet expenses with a tax deduction, but with the overall value of the deduction is limited due to the 7.5% of AGI offsetting most expenses. Furthermore, extensive rules have been promulgated to insure only qualifying animal expenses can be deducted and taxpayers risk the wrath of the IRS if they get too creative interpreting those regulations.

Questions? Contact Mark W. Sullivan, EA


This article was written by Mark W. Sullivan, EA, is Tax Counsel for Per Diem Plus. He has been providing taxpayer advocacy, consulting, and litigation services since 1998. Prior to starting a private practice, Mr. Sullivan was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service. He has over a decade of experience advising transportation industry clients with respect to per diem issues.

Please remember that everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult your own tax or accounting professional.

Copyright 2018

[i] 2014 American Pet Producers Association market study

[ii] https://www.irs.gov/pub/irs-wd/10-0129.pdf

[iii] https://www.irs.gov/pub/irs-pdf/p502.pdf

[iv] https://esadoctors.com/esa-letter-service-dog-certification/

[v] https://www.bankrate.com/finance/taxes/tax-write-offs-for-pet-owners-1.aspx#slide=3

The 2017 Tax Cuts and Jobs Act (TCJA) significantly limited individual itemized deductions available to taxpayers.

Our Tax Pro drafted up a summary of how the tax law changes affect truck drivers; both owner operators and company drivers.  The following is a list of common trucker tax deductions that were changed by the 2017 Tax Cuts and Jobs Act (except where noted):

Miscellaneous Itemized Deductions

This includes all unreimbursed employee business expenses. The following is a non-exhaustive list:

  • Per diem
  • Communication devices and fees such as cell phones
  • Safety & security devices such as GPS devices
  • Clerical operations such as computer accessories and mailing & fax fees
  • Regulatory licensing (DOT medical)
  • Personal hygiene supplies

This provision does not apply to Owner Operators who claim travel-related and business expenses on Schedule C or Form 1120S.

20% Deduction for Qualified Business Income

IRC Section 199A generally provides a deduction of 20% of qualified business income (QBI) derived from a sole proprietorship, partnerships, or S corporation that is a qualified trade or business. The §199A deduction is taken from adjusted gross income (AGI) in determining taxable income and therefore does not reduce self-employment income.

The §199A deduction is complicated and will require significant guidance from the IRS.

Alimony

The deduction for alimony and separate maintenance payments by the payor is repealed. The payee (recipient) will not be required to include such payments in gross income for divorce or separation instruments executed after December 31, 2018.[i]

Medical Expenses

Medical expenses continue to be deductible to the extent they exceed 7.5% of adjusted gross income (AGI) for 2017 and 2018. For years after 2018 the threshold is 10% of AGI.

Moving Expenses

The moving expense deduction is repealed except for members of the Armed Forces. The exclusion from gross income and FICA wages for employer reimbursed moving expenses is repealed other than members of the Armed Forces.

This provision does not apply to Owner Operators who claim expenses related to moving a business operation on Schedule C or Form 1120S.

State and Local Taxes (SALT)

A taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married filing separately) for the aggregate of (1) state and local property taxes not paid or accrued in carrying on a trade or business (See IRC Sec. 212), and (2) state and local income taxes (or sales taxes in lieu of income taxes) paid or accrued in the tax year[ii].

This provision does not apply to Owner Operators who claim business-related taxes on Schedule C or Form 1120S.

Home Equity Mortgage Interest

The deduction for interest on home equity indebtedness is disallowed and applies to existing home equity loans. Home equity loans used for business or substantial improvement of a residence may still be deductible[iii]; any used for personal or investment purposes are not[iv].

Charitable Contributions

The base for cash contributions is increased from 50% to 60%. No deduction is allowed for payments to colleges and universities in exchange for rights to purchase athletic seats.

Gambling Losses

All gambling expenses are now subject to the gambling winnings limitation and not just wagers. Schedule A filers can still deduct gambling losses to the extent of winnings but must have total itemized deductions exceeding the increased standard deductions.

Affordable Care Act

The individual tax for failure to maintain minimum essential coverage is reduced to zero with respect to health coverage status for months beginning after December 31, 2018.

New Standard Deduction Amounts

The standard deduction is increased to $24,000 for married filing jointly, $18,000 for head of household, and $12,000 for unmarried (single). The pre-2018 additional $1,250 standard deduction for taxpayers over age 65 or who are blind are retained.

Personal Exemption and Dependency Deduction

Personal exemptions and dependency deductions are repealed. The IRS is examining how the definition of qualifying relative should be addressed.

Head of Household Due Diligence

Section 6695(g) of the internal Revenue Code requires paid return preparers to satisfy due diligence requirements to ensure clients qualify for the American opportunity credit, lifetime learning credit, earned income credit, and child tax credit.

Questions? Contact Mark W. Sullivan, EA


This article was written by Mark W. Sullivan, EA, who has been providing taxpayer advocacy, consulting, and litigation services since 1998. Prior to starting a private practice, Mr. Sullivan was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service. He has over a decade of experience advising transportation industry clients with respect to per diem issues.

Please remember that everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult your own tax or accounting professional.

Copyright 2018

[i] Notice 2018-37, 2018-18, I.R.B. 521

[ii] IRC § 164(b)(6) (flush language)

[iii] Temp. Reg. § 1.163-8T

[iv] Refer to Publication 936 (2017) Home Mortgage Interest Deduction for definitions of “substantial improvement”

A trucker asked the following question to our tax pros recently, “If I have two different home addresses can I claim per diem while off duty at either location?  And can I claim per diem for off days spent visiting my wife in Oregon

Facts: Bill is an OTR trucker who claims Las Vegas, Nevada as his tax home. He takes 4 days off for every 2 weeks he is on the road.  He and his wife were married in June 2017 and listed the Nevada address where they maintain a home (a state with no income tax) on their 2017 Federal income tax return[iii]. However, one year later she still lives 920 miles away in Oregon (a state with an income tax) where he stays with her on his off days. His wife picks him up at the truck stop where he parks his truck. Bill has been claiming per diem for every day he is away from his Las Vegas home on  a truck driving trip.

Self-employed truck drivers subject to DOT hours of service regulations are entitled to claim per diem for meals and incidental expenses and other travel-related expense as a tax deduction. A truck driver is not away from home unless his or her duties require the individual to be away from the general area of his or her tax home for a period substantially longer than an ordinary workday[i]. Furthermore, to claim travel-related expenses a trucker must have a tax home [where they park their truck] in a real and substantial sense[ii]. However, a deduction is only allowed for ordinary and necessary traveling expenses incurred by a taxpayer while away from home in the conduct of a trade or business.

Inquiry: Whether his tax home is Nevada or Oregon and whether the Las Vegas home is indeed his permanent residence for per diem purposes are factual questions resolved by the fact 1) a taxpayer can only have one tax home 2) Bill acknowledged that he does not spend any off days in Nevada 3) he bares household expenses in maintaining both the Las Vegas and Oregon home, and 4) visiting with his wife in Oregon on his off days does not meet the legal requirement of incurring ordinary and necessary traveling expenses in the conduct of a trade or business.

As this example demonstrates, per diem issues can be complicated. Per diem would be allowed for a driver who is away from home undergoing a 34-hour restart while in transit between a shipper and consignee, but not if the restart is done at home. Although, Bill claims Las Vegas, Nevada as his tax home, the facts dictate that Oregon is his tax home in a real and substantial sense, thus he does not qualify for per diem while visiting his wife. Additionally, attempting to claim per diem for every day he was away from his Las Vegas home - 365 days in this case - would be a red flag to IRS for audit.

Drivers, try Per Diem Plus for free for 30 days - No Credit Card Required.

   
Download Per Diem Plus for iOS HERE
Download Per Diem Plus for Android HERE

Questions? Contact Mark W. Sullivan, EA


This article was written by Mark W. Sullivan, EA, who has been providing taxpayer advocacy, consulting, and litigation services since 1998. Prior to starting a private practice, Mr. Sullivan was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service. He has over a decade of experience advising transportation industry clients with respect to per diem issues.

Please remember that everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult your own tax or accounting professional.

[i] IRS Rev. Proc. 2011-47 (most recently superseded by 2017-42) & IRC 162(a)(2); Reg 1.162-2)

[ii] Rev. Rul. 75-432

[iii] Bill did not disclose whether he and his wife filed an income tax return with Oregon. Nevada does not have an income tax.

Copyright 2018

Proud to be American - Per Diem Plus
Proud To Be American
100% developed, owned, and managed in the great USA!
Follow Us
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram