Filing taxes can get confusing, especially when you breed and sell dogs. It can be hard to know what records you need to keep and for how long. So whether you’re wondering if income from dog breeding needs to be reported or you’re not sure which expenses are deductible, put your mind at ease with our list of 5 things dog breeders should know when filing taxes.
#1 You will fall into 1 of 2 categories
There are 2 categories dog breeders can fall into, the hobby category or the business category. There are a lot of requirements that need to be met before you can classify your dog breeding as a business. As a result, many dog breeders will find they fall under the hobby category. No matter if your dog breeding classifies as a business or hobby, you must report any and all income earned from dog breeding. Any income you get from selling puppies, stud dog services, or boarding is taxable income that needs to be reported.
To be classified as a business, you must demonstrate that you are working toward making a profit. This includes keeping records, having a separate bank account just for your dog breeding business, and even creating a Limited Liability Company (LLC) for your business. A company is seen as being for-profit if it has made a profit in the last few years. Counting the current year, you must make a profit for 3 out of the 5 past years.
#2 You will need to fill out a Schedule C form
Dog breeders will need to fill out the Schedule C form along with Form 1040. This form is for sole proprietors of an LLC or self-employed sole proprietors. On the Schedule C form, you will state all your income from dog breeding. You can add any dog breeding expenses you had as deductions on this form. Hobby dog breeders will also use the Schedule C form to list any deductions.
#3 Know the difference between employees and independent contractors
People aiding temporarily in your dog breeding will fall under the independent contractor category while those who are frequently around and an integral part of the whole business are considered employees. Just like other businesses, employees will get a W-2 while independent contractors should be given a 1099-NEC if they've made at least $600 during that year as a contractor for you.
#4 Know which expenses are deductible
If an expense is vital to breeding dogs, you can put it down as a tax write-off. Deductible expenses include equipment like whelping boxes, leashes, food, and litter delivery supplies; veterinary expenses such as vaccinations, spaying, neutering, and c-sections; and animal transportation expenses such as trips to the vet, driving for puppy introductions, or delivering a puppy to a customer. Dog purchases made by you, like the purchase of a stud or dam, don’t count as business expenses but dogs can be depreciated over the timespan of 7 years.
If you breed dogs at your home, you may be eligible for a home office deduction. However, there are some requirements that can be disqualifying. For example, this space must be used exclusively for dog-breeding-related matters and cannot be a general-use room for other activities.
#5 Keep a detailed record of all income and expenses
All dog breeding expenses must be legitimate with receipts and records. Whenever you have veterinarian visits related to dog breeding, it’s vital you keep related paperwork. When adding veterinary expenses as deductions, keep records of these receipts that include what was performed, the date, successful payment, the dog’s name, and your name.
Record-keeping is so important because including an excess of expense deductions on your taxes can quickly flag the IRS and have you audited. Because you’ll need a detailed paper trail when filing your taxes and in the case of an audit, keep financial records and other related paperwork for 7 years.
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