Question: what kind of dog did Dracula have?
Answer: a bloodhound
So today is New Year’s Day. Many of us have stayed up way too late in fun and frivolity, and I need you to wake up and focus on an interesting area of tax law that may benefit you or someone you care about. Today, we are going to talk about dogs and the tax law. Yes, you read correctly–we are going to talk about dogs.
Dogs have long performed useful roles in the service of humans. They protect us, they are fantastic companions, and they have an innate ability to create a sense of safety and well-being with their owners. In recent years, we have seen the expanding role of service dogs in rehab hospitals and assisted living facilities. People are finding more and more ways in which our canine companions can serve others.
Believe or not, the federal tax laws actually allow for deducting the expenses of dogs that provide such services. Let’s briefly look today at how the tax laws work in connection with service dogs.
Many of you are already familiar with federal tax laws that allow us to deduct certain medical expenses for our medical care, and that of our spouse and our dependents. Approved medical expenses can include a broad variety of things and has been broadly interpreted. These laws have been interpreted to include the use of dogs to the extent they provide a medical service or medical benefit.
Years ago, we likely associated service dogs only with the visually impaired. However, the trend is the expansion of the use of service dogs to include service to persons with emotional and psychological issues. For example, use of service dogs is becoming commonplace in the treatment of PTSD.
As a result, the cost of acquiring and maintaining a service dog may qualify as a deductible medical expense. And these expenses can be quite substantial. The cost of acquiring and properly training such a dog can be in the tens of thousands of dollars. The medical expense deduction may also include the cost of travel, meals and lodging while working with such a dog that’s in the process of being trained. If the dog qualifies, then certain types of maintenance expenses may be also deductible. For example, the maintenance expenses may include veterinary fees, grooming, license, vaccinations, food and supplies, etc.
- AGI Limitations
Typically medical expenses are deductible only to the extent they exceed a certain percentage of your adjusted gross income. This limit is often 10% and can reduce or eliminate many valuable medical expense deductions. However, all is not lost if properly planned for.
- Flexible Spending Accounts
In order to avoid this burden, employers often set up what is called a flexible spending account. This is a tax qualified type of arrangement whereby the employer contributes money to an account for an employee’s medical expenses. The employee does not have income for the contribution but the employer does get a deduction. An employee can elect to reduce their income for this purpose.
The good news is that the federal tax law allows the cost of service dogs to be a covered expense for an FSA. This would allow you to deduct the expenses of a service dog free of the AGI limitation.
- Achieving a Better Life Experience Accounts
The federal tax law also allows an individual to deduct up to $14,000 each year for contributions made to an ABLE account to benefit someone who is blind or disabled. Anyone can make a contribution to start an account, it doesn’t need to be just the beneficiary but can also be family members and friends. Again, such an account can help avoid the AGI limitations and benefit someone in need.
The trend of expanding the use of service dogs can improve the quality of our lives. No longer are dogs serving only the visually impaired, but they are also serving those with emotional and psychological issues. If your health care professional believes that a service dog is appropriate for you, I encourage you also to talk to your tax professional to determine if a medical expense deduction is available for the expense of your service dog. Best wishes for a healthy 2017.