Turning Pet Care Costs into Tax Advantages for Painting Contractors

Welcome to the Profitable Painter Podcast. The mission of this podcast is simple: to help you navigate the financial and tax aspects of starting, running, and scaling a professional painting business. From the brushes and ladders to the spreadsheets and balance sheets, we've got you covered. But before we dive in, a quick word of caution. While we strive to provide accurate and up-to-date financial and tax information, nothing you hear on this podcast should be considered as financial advice specifically for you or your business. We're here to share general knowledge and experiences, not to replace the tailored advice you get from a professional financial advisor or tax consultant. We strongly recommend you seeking individualized advice before making any significant financial decision.

This is Daniel, the founder of Bookkeeping for Panthers, and this is Richard, tax director. How's it going today, Daniel? It's a beautiful summer day. It's July 4th today that we're recording this.

It is. Happy Independence Day.

Yeah. Here in America, we're enjoying a day off. I guess they don't get that over in the UK, do they?

I don't think so.

Maybe that's what happens when you lose the war, right? It is.

Yeah, they're still working today.

So, well, hopefully our UK listeners, if we have any UK listeners, who like to hear about American tax code are having a good day anyway. I thought today being a holiday that we might be able to do something a little, a little fun, a little bit different. And, you know, it's, it's kind of like painting adjacent because a lot of our listeners do have pets that they love and that are members of their family. And I thought, wouldn't it be awesome if we could get tax deductions for having a pet. And we don't recommend anything shady or anything, you know, not legal. But there are some certain circumstances where you might be able to get, you know, some kind of a tax write-off involving your dog or your cat or another animal that you have. And we need these tax write-offs, right? Because having a pet is expensive. Oh my goodness. So I was, I was trying to Google some statistics and I came across this one from the Bureau of Labor that says the average US household spends $770 per year on pet food, medical expenses, supplies, and toys. And that, that's a lot. Yeah.

Yeah. Especially on the pet food, like I feel, I don't, it's weird to me that, you know, didn't dogs evolve from wolves and they were with us humans and they, like, they started like we, we'd feed 'em scraps and they'd provide like early warning to us for predators and stuff like that. So they evolved with us. And we fed them just the food that we were eating. But for some, at some point we started like buying special food for them that, you know, we pay a premium for. I don't understand that thing.

Yeah.

Just feed 'em table scraps. That's what they've been living off of for hundreds of thousands of years. Right.

Well, if you come, if you come to my house, my dog gets her pet food, her pricey pet food and table scraps. So I think the dogs kind of know what they're doing here. Like they've got, they're gaming the system, they're getting the best of both worlds.

But yeah, definitely. I mean, it's definitely good to get in on an apex predator that, you know, rules the world. They definitely game the system there, right?

Yeah. No, they're, you know, and the thing is like, yeah, so we spend, we spend a lot of money on our furry friends, but the, the value that they bring us is not something that we can really measure in dollars and cents, but we're going to try. Uh, so how can you, you know, possibly get some tax write-offs for your pet? I came up with 5 ways, uh, and I'm just going to say right off the bat, one of the ways is not claiming them as a dependent. Uh, yes, they are dependent on us. Yes, they are our fur babies, But the IRS is not going to let you get a child tax credit for an animal unless that animal maybe has a Social Security number. But, but even then, I think you would struggle. But here are some—

yeah, humans or animals. Yeah.

So, oh, should I say non-human animals? Would that—

non-human animals? Yeah. I had to explain this to my daughter this week. So She didn't realize that humans are animals. And we had to have that discussion. Like, so, yeah, I love it.

We're doing, we're doing tax advice, we're doing biology, all sorts of things today. So, okay, so when I say animals, I mean non-human animals, usually talking about dogs or cats, but there might be situations where horses, pigs, cows, chickens, We'll get into that. All right. So number one, all right, stop burying the lead, right? Number one is medical expenses. And we're talking about like medical expenses for you and your family. There are about 500,000 service dogs in the country right now assisting about 27% of Americans who have some kind of medical condition.

That's crazy. Just want to highlight that. That's so many dog— service dogs. A half a million.

That's, that's the number that Google popped up for me. So, you know, feel, feel free to challenge it, uh, but that, that's what I was able to come up with, about a half a million service dogs. And, uh, I don't know if that includes other helper animals, but, uh, yeah, about 27% of Americans. So you more and more doctors are prescribing service animals or recommending that patients invest in some kind of a service animal for all sorts of conditions like anxiety, depression, autism, and then, of course, physical and mental disabilities. So the question is, is if you have a service animal, is that animal and the expenses around it tax deductible? And this is where, you know, the devil's in the details. And you may or may not agree with, with the way it's written, but this is just kind of how the IRS is handling it right now. So it's not specifically— Congress did not specifically write out which service animals count and which ones don't. But generally speaking, the IRS is going to allow a deduction Only if a service animal or guide dog meets the definition that the Americans with Disabilities Act set out, which is an animal that is trained to do work or perform tasks for people with disabilities. So, you know, we're thinking like a guide dog for someone who is blind, you know, someone who is disabled, an animal that can answer the door, that can help them get ready in the morning. But we've also seen support for animals that assist those who have mental or psychiatric issues. So folks who suffer from PTSD, severe anxiety, or depression, who have a certified service animal, could probably take a tax deduction for, you know, the cost of obtaining the animal, it's food, it's training, supplies, equipment, whatever, you know, is involved. Now, unfortunately, the IRS will usually disallow a deduction if the service animal is an emotional support animal or a therapy animal for folks who have undiagnosed conditions. Now, this isn't a hard and fast thing, but generally the IRS is not going to allow deduction for, for emotional support animals. If you really want to kind of get into the weeds on this, I recommend IRS Publication 502. It's also a great read if you can't sleep at night, but it spells out everything that is a medical expense that can be deducted.

Once you start hearing— so if you're suffering from insomnia, IRS Pub 502. Got it.

Yes. And then can you write off the cost of getting Publication 502 to treat your insomnia? It's just like— it's like a circle, right? The state. No. Once you figure out if it really is a medical expense, then you got to decide, well, how am I going to take the deduction? And that we could do a whole podcast on that. But you've got a lot of options, you know, from itemizing on Schedule A, which honestly is probably the least best way of doing it, or the least advantageous way of doing it, to using a flexible spending account or a health savings account. Or if you are a business owner and you have a health reimbursement account arrangement, that would probably be ideal. But just, just trying to identify, does my service animal qualify as a medical expense? And then how am I going to take that medical expense in the most tax-advantaged way? So that's number one. Number two, and I, you know, we were talking before the podcast, I like this one a lot for our business owners. That is using a guard dog, right? Using an animal for security. So you might have a shop that you work out of Or maybe you store materials and inventory at your house, an outbuilding, or a garage, and you might need to have some kind of security or, you know, protection set up so that, you know, hoodlums don't come in and take all your stuff. And a guard dog might make sense, right? Especially when you compare it to the cost of some of the fancy, you know, electronic systems available now. A guard dog could could be— make financial sense. So there's no, there's no real definition for what a guard dog is, but we want an animal that, you know, works for providing security. So we're thinking, you know, German Shepherds, Rottweilers, you know, Dobermans, you know, a 12-year-old Chihuahua with only one good eye probably is not going to pass, you know, the test as a guard dog. Because, you know, we want this to be a justifiable, you know, legitimate thing. If you do have a guard dog, you can deduct the cost of the food, the vet bills, training. You can also deduct the cost of obtaining the guard dog. But this is kind of funny, you know, technically speaking, this would be a business asset. And the IRS has assigned a useful life of 7 years to, to this asset. So if it's a very expensive guard dog and you have to capitalize it, you may need to depreciate it over a 7-year useful life. That's 7 human years, not 7 dog years. Of course, you could always use bonus depreciation or Section 179 to write it off in the first year. And of course, you know, keep good records. And remember, if you do get audited or the IRS asks you This is a guard dog that is provided for security. This is not, you know, Fluffy or Fido, uh, even though the kids might occasionally play with it.

Yeah, this is a good one. There's a lot of folks that are— that have shops out of their garage or their shed, and this makes a lot of sense. So I, I definitely look into this if you have a, a dog that you know, I know you said like a German Shepherd, Rottweiler, Pit Bull, Doberman, those types of dogs, but even some of the small dogs, they're good for early warning. I don't know. I don't, I don't know if there's any tax case law on using like a, a Chihuahua as your, your guard dog because it's a really mean Chihuahua.

Yeah.

Because there are a lot of those, like it seems like the smaller the dog or like those really tiny dogs are really vicious, even though they couldn't really hurt you, but they're like loud and annoying. They could be a good, uh, like siren, basically.

Yeah, no, I mean, again, there's no, there's no like set list of appropriate breeds. You have to use your good judgment. I was just kind of making the point that, you know, whatever animal you use, it should make sense. So yeah, I mean, if you have a particularly young and aggressive Chihuahua that works well by all means, you know, because again, you know, this isn't a family pet. We have this animal for a purpose. So it needs to be able to, you know, provide that purpose of security. All right. So number 3 is kind of along the same lines, except we're going to switch from dogs to cats. And there is case law for this one, and that is using cats for pest control. So the dog keeps away the bad guys. The cats can keep away the mice, the rats, the snakes, and things like that. There was a 2001 IRS court case. It was Samuel T. Seawright versus the Commissioner. And the Seawrights were a couple who owned a junkyard in New Jersey, and they put out cat food to attract feral cats. To keep all the mice and snakes out of the junkyard. And they wanted to deduct $300 on their tax return for cat food. It was challenged and it went all the way to tax court. And the court sided with the Seawrights, saying that this was an ordinary and necessary business expense. You know, the thing with ordinary and necessary, it doesn't necessarily have to be ordinary for you. It needs to be ordinary for the trade or the business that you are performing. So we think about like here in the Midwest, we, we have a lot of farms and almost every farmer has at least one or two barn cats whose job is to keep the mice out of the feed. And they might put out some cat food for them to keep them, you know, in the barn. Don't put out too much cat food because then, you know, they might not want to eat the mice. I, I don't know. You, you'd have to, to talk to an expert about that.

What if you put out dog food for your guard dog and then you have a cat to keep the mice out of your dog food?

Right. This is like the children's nursery rhyme, right? The, the spider ate the fly, the cat ate the spider, the dog eat the cat. No. Yeah, we're talking about possibilities here. I mean, you obviously use your own good judgment. You may not want your, your inventory shed to be filled with cats either. So that's something to consider. But if you did have, you know, a problem with mice and you decided to keep a couple of barn cats around, yeah, you can write off the expenses for that. Sure. We have case law. So, so now we're going to kind of get into a little bit less business and a little bit more about maybe something that you have already been doing personally. But is it a hobby or could it be a legitimate business with deductions? So sometimes people like to breed dogs or cats and sometimes they like to show them in like competitions or shows. You know, personally, we got our fur baby Elsa from a coworker of mine who bred— excuse me— who had the father and the mother, and she would breed the puppies and she would sell them. And, you know, that was her, that was her side gig. Now, is she doing this as a hobby? Or is she doing it as a legitimate business? That has a profit motive. A hobby is something that it doesn't matter to you if you make money or not. And in that case, you don't have any tax write-offs. You have to claim the income, but you don't get to write off any of the expenses. But if you have a legitimate business with a profit motive and maybe a, a quick one-page business plan, even better yet, a separate checking account, uh, then you can Well, you'll still have to claim the income, always have to claim the income, but you can also write off some of the expenses like the food, the vet bills, the bedding, things like that. The trick is, is that you are going to need to file a Schedule C tax return and let the IRS know about your business. And you're going to want to show at least some profit some of the years. If you file a Schedule C with nothing but losses, for 3, 4, 5 years straight, you're waving a big red flag and you're telling the IRS that this isn't a legitimate business. This is just me trying to write off my hobbies. So, you know, I'm not saying you can't have a loss because, because businesses have losses. You might even have a loss for, you know, a couple of years in a row. But eventually you are going to want to show some kind of a profit to justify that this is a business and not just a hobby. So yeah, so if you are breeding animals or showing them in shows, you might be able to turn that into a legitimate side business and write off those expenses. Another, another one has to do with an animal that is part of your provided services. So think about like maybe you go to a bed and breakfast and part of this bed and breakfast experience is the cat that lives in the house and they use the cat in the advertising and the cat joins you for breakfast, which I don't know if that's sanitary or not, but sometimes people like that. Cat Cafés is a good example. If you want to get a latte with a side of fur, these animals are part of the experience that is being sold. And therefore they are legitimate business expenses. Now, it might be a little bit of a stretch for a painting company owner. I was thinking of my, my brother-in-law. He owns a carpet cleaning company. It's called C Spots Run. So shout out to Kevin. C Spots Run, southern Wisconsin, northern Illinois. And he has a big cat and dog on the side of his carpet cleaning vehicle. It's part of his advertising. If he had a dog that ran around with him and he used the dog in, you know, part of his provided services, then that dog might be a legitimate business expense. So I don't know if that's something that can be kind of parlayed into a painting company, but, you know, animals that are a part of your business, they can be a deduction. Now, regardless of whether or not you're able to actually take tax deductions for your pets, we do kind of want to think about what's going to happen to them if something was to happen to you. So I strongly recommend that, you know, your, your pet be a part of your estate planning, that you have a caregiver set aside. For your animal if something was to happen to you. And you might even try to assign a little bit of money to that caregiver from your estate so that they, they will have the funds needed to take care of them. You know, my wife and I, we're currently working on our estate plan. Part of our revocable living trust is that our dog Elsa is given a guardian and that guardian is given $5,000 out of our estate to take care of Elsa and help with her expenses. So just, just something to put out there, you know, make sure your pets are part of your estate plan so that they're cared for if, heaven forbid, something was to happen to you and your family.

Oh, I think I like, like some of these ideas. I said some of them. I mean, let's be honest. Yeah, it's good stuff. I especially like the guard dog one. Um, that, that could definitely be applicable for pretty much, uh, I would say 80% of painting businesses we talk to, they usually have some sort of shop. I would imagine most of them have pets, at least most, most folks. Um, but if they have a dog, that would make the most sense in that scenario. The cat for pest control could apply maybe to a lot of folks have a homestead or something like that, that they, they might do something in addition to their painting business. And, uh, and obviously medical expenses if that specific scenario applies. That would make sense. But I'm trying to think of like a, a painting business name that would use like a dog or a cat in your name and, and then kind of just like you said, use that as like your mascot, feature them somehow in the experience of getting your house painted. I don't know, there might be something there.

Yeah, I, I say if anyone has an idea, or, or better yet, if anyone's actually using, uh, a dog or a cat their painting business, you got— you got to let us know. I really want to know. You got to join the Facebook group, put it in the comments, because I would love to see— I'd love to see how you're doing it. You know, it does require thinking outside the box for sure and dotting your i's and crossing your t's. I will say— I will say this. I was at a tax conference last month and I talked to a CPA. He has a client who owns cattle inside of his IRA and he buys and sells cattle in his self-directed IRA. I thought that was awesome. Like, yeah, like going, you know, and you'll never guess what state he's from. It starts with T and ends in excess, but it's pretty common down there. I've also heard of people raising like cows, pigs, and steers, and then, uh, using them at like state fairs or, um, you know, 4-H gatherings. Uh, the kids can use them for the rodeo shows, or they might use them as petting farms. So there's definitely some creative ways. If you're an animal lover and you want to make your animals part of your business, there's definitely ways of doing it. But it does require a little bit of creativity and thinking outside the box.

Yeah, I like it. All right, cool. Well, with that, we will see you all next week.