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labdoc
09-15-2009, 07:37 PM
As it seems apparent that taxes will increase to pay for Iraq, Afghanistan, Obamacare, stimulus packages, automotive bailouts, etc, I have been looking for every available legal tax deduction in my business and personal life. Maybe there are CPA's on this site that can supply some helpful advise. If you sell a litter of pups and claim the income, then you should be able to claim the training, supplies, food, birds, kennels, etc as expenses if this is a "business". How do others handle this situation? Has anyone been audited in this area?

dnf777
09-15-2009, 08:05 PM
As it seems apparent that taxes will increase to pay for Iraq, Afghanistan, Obamacare, stimulus packages, automotive bailouts, etc, I have been looking for every available legal tax deduction in my business and personal life. Maybe there are CPA's on this site that can supply some helpful advise. If you sell a litter of pups and claim the income, then you should be able to claim the training, supplies, food, birds, kennels, etc as expenses if this is a "business". How do others handle this situation? Has anyone been audited in this area?

try searching the forum. I know this has been discussed before. I've asked my tax guy about using the kennels and training as deductions after hearing of Todd Palin using his snowmobile racing hobby as a huge deduction...and was told that the IRS assumes all such set ups are scams until proven otherwise. Often by YOU in the form of an audit!:-x:-x So I didn't go there.

YardleyLabs
09-15-2009, 08:22 PM
A lot of the IRS reaction is likely to be determined by whether you show a profit or a loss. If a loss, then there will be a question as to whether or not your operation is clearly organized as a business. For example, do you breed repeatedly. Do you breed all the dogs that you are training or at least all dogs that meet a specific standard of performance. Are your training activities clearly related to the manner in which you promote sales. The presumption is that the activity is a hobby and not deductible unless the expenses are clearly related to a business process geared to make money. Do you advertise and have promotional materials (website, business cards, letterheads) that clearly indicate the nature of your business and illustrate the value of the activities that you are trying to deduct? Trainrs routinely deduct training expenses and are not questioned because people pay them for the training.

luvmylabs23139
09-15-2009, 08:59 PM
You can write off hobby expenses only up to the amount that they offset hobby income. You can NOT claim a hobby loss.

Hank
09-15-2009, 09:20 PM
I seem to recall a rule about the need to be profitable once in seven years if you expect to be regarded more than a hobby farmer. BTW, Farmers don't ever get to expense (or depreciate) the value of their land. I believe it helps to demonstrate a profit motive if you can show advertisements that you have run. If you think about it. Why shouldn't your expenses be deductible if you ever dream of getting that one in a 10,000 dog that everyone would want to pay you stud fees for. I can guarantee that if you were so lucky the IRS would get THEN consider themselves in business with you. Working to improve a breed is laudable work. Let's not sell ourselves short. Also remember if your hobby does become a business you can always sell your used hobby gear to the business and deduct it that way. I suppose the same would apply to your dogs.

Bruce MacPherson
09-15-2009, 11:32 PM
As it seems apparent that taxes will increase to pay for Iraq, Afghanistan, Obamacare, stimulus packages, automotive bailouts, etc, I have been looking for every available legal tax deduction in my business and personal life. Maybe there are CPA's on this site that can supply some helpful advise. If you sell a litter of pups and claim the income, then you should be able to claim the training, supplies, food, birds, kennels, etc as expenses if this is a "business". How do others handle this situation? Has anyone been audited in this area?

If you are deriving and reporting income from dog breeding you can deduct related expenses. If you include training and selling started or finished dogs you can include those related expenses. If your going to go that route it pays to formalize the particular business, LLC, Corp, sole proprietor, get the business license and a UBI number. Keep good records. Audits are not as common as some might have you believe.

ErinsEdge
09-16-2009, 07:04 AM
Luv has it right. You should report a litter and can deduct your expenses as a hobby but you can't declare aloss because it is a hobby. If you have a real job and try sliding the dogs in as a business it will not be worth it. I survived a 5 hour audit and actually came away with some good advice. People have tried proving they are a business and end up with interest penalties and it definatly isn't worth it.I fear the IRS return address because its no fun and you better keep your records for 7 years. My audit came after a loss which was allowed.

Roger Perry
09-16-2009, 07:19 AM
What about the owners of the really good stud dogs that are bred hundreds of times? Do the owners have to declare the income if it is as you say a hobby or do they have to declare the income because it is making a profit?

Gerry Clinchy
09-16-2009, 07:21 AM
I seem to recall a rule about the need to be profitable once in seven years if you expect to be regarded more than a hobby farmer.

For businesses other than farming, I believe you have to make a profit 2 out of 5 years.

If you only breed more occasionally than that, then it's probably just as easy to let it be a "hobby". That means you can deduct expenses equal to the income, but not take the loss. If you have a dog with a pro, that could easily wipe out any "profit" from the litter income :-) At least you wouldn't be paying taxes on that income. Within the hobby category, you'll also be deducting expenses directly related to the stud fee, vet expenses for mom & pups, advertising, food, etc.

Still hobby: next you would want to deduct all vet expenses for the year for mom & food. After all, without that she couldn't have produced the pups.

While the "business" rules say you have to make a profit 2 out of 5 years, they do not say how much you have to make in profit. It could be a very small amount.

I truly doubt that for most of us, unless we do some boarding and training, if you looked at the total figures over 5 years you would see black ink :-)

Planning could help. One year I bred a bitch in Sept. Pups were leaving here in late Dec./early Jan. I made sure that the income didn't come till Jan. Then I had a litter around June of that year (another bitch). The income from both years got entered in the latter year. You can take smaller deposits and delay releasing pups to homes by a week or so in situations like that. That inflated the second year's income (usually I would not have more than one litter a year at most). If your bitch(es) cooperate like that just twice in 5 years, you could possibly fulfill your "profit in 2 of 5 years" requirement as a business.

The IRS is happy to answer your questions on stuff like this. If you have an accountant, they can help as well. NO! I'm not an accountant, but this topic has come up on other lists I belong to which did have accountants commenting.

Another thing is that if you donate to a service group (Seeing Eye, for example), you can take a charitable donation deduction. The deduction, I'm told, is limited to the amount it costs to raise the pup to the age when it's donated based on your direct litter expenses (I believe). And you have to get a letter from the charity verifying that you made the donation, which is no big deal. Just make sure that the organization is one that is tax deductible.

Hank
09-16-2009, 08:06 AM
It's probably better to talk to a tax lawyer about these issues rather than a tax preparer, accountant, or even a CPA. A lawyer is more likely to be willing to look up the law. An accountant will likely give you an answer based on what he knows. If you do ask an accountant you need to find one that has had experience with small sideline businesses.

I am also guessing there are all kinds of special depreciation rules for businesses involved in breeding so expect things to be complicated. It's just impossible for things not to be complicated at the IRS - just take that as a given.

TXduckdog
09-16-2009, 10:00 AM
What about the owners of the really good stud dogs that are bred hundreds of times? Do the owners have to declare the income if it is as you say a hobby or do they have to declare the income because it is making a profit?

Roger....I suppose there is some language in the tax code about this.

We can call Charlie Rangel who wrote most of it and ask and then also ask how we could get by without declaring it...like he did.

Steve Amrein
09-16-2009, 10:08 AM
How about prostitution :p hows that claimed.........


Our friends had big $$ litters and lots of stud fees from time to time and to offset the income they even had to buy a new truck. The had it all set up in the past as some sort of Company or LLC. I would not want to set anything like that up because if I showed the losses on paper like I assume it would work out I would be sick or be in the hospital for what the wife would do to me.

ErinsEdge
09-16-2009, 10:46 AM
You handle them like race horses, but most of those people have a bunch.

luvmylabs23139
09-16-2009, 10:52 AM
What about the owners of the really good stud dogs that are bred hundreds of times? Do the owners have to declare the income if it is as you say a hobby or do they have to declare the income because it is making a profit?

Technically, the best way would be to set up an LLC prior to having that great stud dog.
Real life best way to handle it, no comment.:rolleyes:

If you kept all records for prior years you could actually file ammended returns adding in the business with losses to offset the years of income. That would not have to be an LLC .

Don't forget that if the owner of the stud dog has multiple dogs they can offset the income from the one stud dog with the expenses for all of the dogs.

Richard Halstead
09-16-2009, 01:57 PM
What about the owners of the really good stud dogs that are bred hundreds of times? Do the owners have to declare the income if it is as you say a hobby or do they have to declare the income because it is making a profit?

All the profit is reported as well as costs for maintaining the stud dog. You can write off entry fee's, as well as travel expeses. If you write off more than you take in it's no longer a business, but a hobby.

Hank
09-16-2009, 03:07 PM
I'm not sure that losing money is what turns a business into a hobby. I believe the IRS is realistic enough to recognize that many many many businesses come into being but end up losing money. I also don't think that whether or not you have a full time job figures in to what constitutes a hobby. You have to remember that the IRS is boxed in because ideally for them, everyone would have a full time job AND a lucrative taxable sideline. Bottom line is that the IRS's mission is to encourage the profit motive, not to discourage it.

labdoc
09-16-2009, 03:18 PM
I still question the hobby versus business part as anything can be a hobby yet I can't deduct, say watching football, unless I plan to publish a video on armchair quarterbacking, then it becomes a business. Truthfully the puppy mill is more of a business than the occasional retriever breeder as they are the one's trying to make it profitable.

Let me change my original question a little. If you have 1-2 litters a year, do YOU deduct food, vet, kennels, bumpers, training, etc. and if so has the IRS ever questioned your deductions?

luvmylabs23139
09-16-2009, 03:35 PM
Let me change my original question a little. If you have 1-2 litters a year, do YOU deduct food, vet, kennels, bumpers, training, etc. and if so has the IRS ever questioned your deductions?

Claim no income deduct no expenses. Chances are expenses are greater than income. YOu would be able as a hobby breeder to deduct all the food, vet bills, etc associated with any other dogs you own as they are also part of your hobby. The retired 12 yr old snoozing on your couch is part of your hobby.
Don't play with fire with the IRS:rolleyes:

YardleyLabs
09-16-2009, 03:58 PM
I still question the hobby versus business part as anything can be a hobby yet I can't deduct, say watching football, unless I plan to publish a video on armchair quarterbacking, then it becomes a business. Truthfully the puppy mill is more of a business than the occasional retriever breeder as they are the one's trying to make it profitable.

Let me change my original question a little. If you have 1-2 litters a year, do YOU deduct food, vet, kennels, bumpers, training, etc. and if so has the IRS ever questioned your deductions?
I have deducted expenses related to the maintenance of the dogs I breed, but have not deducted expenses related to training or purchase. I have also reported a profit (albeit a small one) from breeding activities and paid the piper. For my photography, which is similarly at risk of being classified as a hobby, I deduct all variable expenses (travel, supplies, shipping, annual software upgrades), but not the costs of equipment since that would place me in a loss position. I show a small net profit and pay the taxes. I have never been audited on either.