TurboTax Support Blog

Is my child an animal?

Last week, I explained that you cannot claim your pet as a dependent on your tax return. If you’d rather not read the whole article, this quote summarizes it nicely:

Although the IRS doesn't specifically spell it out, it is tacitly implied that dependents — at least for taxation purposes — must be human.

Now, I’ve been in this business so long, I already know what your next question is. You’re living with some kind of creature (possibly a teenager) that’s eating you out of house and home, and you’re wondering how to determine if this entity is human so that you can recoup some of your losses.

Well. That’s what I’m here for.

The more we learn about animals, the scarier it gets. They are more like us — and we are more like them — than we care to admit.

For many years, we believed that the ability to make tools is what separated us from the rest of the animal kingdom. Then I saw this program on TV the other night where chimpanzees made — and used — sharpened sticks to spear their prey.

Well, that pretty much threw a monkey wrench into that hypothesis. Ha ha, get it? Monkey wrench.

OK, what about the ability to feel happiness or sorrow? Or to wage war? Exclusively human, right?

Wrong. Chimps have aped us in those departments too. Hoohoo, I kill myself. (Not uniquely human either — lemmings have been known to do that. Kill themselves, that is.)

Other than DNA analysis, which is expensive and non-tax-deductible to boot, there is no way to tell with absolute 100% certainty that the hungry inhabitant you’re living with is indeed Homo sapiens. But there are ways to tell with 99.99% certainty, and if that’s good enough for the IRS, it’s good enough for you.

Test #1 – The Opposable Thumb Rule

Examine the ends of your creature’s forelimbs. What do you see?

• What forelimbs? You have a snake or a pet rock. Not a dependent. STOP.
• Paws, dewclaws, hooves, wings, flippers, tentacles, fins, or talons. You have some sort of animal. Not a dependent. STOP.
• A hand with an opposable thumb. You have a primate, which is a step in the right direction. Proceed to Test #2.

Test #2 – The Tail Rule

Now examine your creature’s hindquarters. Do you see a tail?

• Yes. You have a monkey, which you cannot claim as your dependent, at least not until a few more million years of evolution have passed. STOP.
• No. You have a human, an ape, or a monkey that lost its tail. You’re getting warmer. Proceed to Test #3.

Test #3 – The Hair Distribution Rule

Is the hair more or less evenly distributed along the body of your creature?

• Yes. You have an ape, a tail-less monkey, or JoJo the Dog-Faced Boy. Of these, only JoJo can be claimed as a dependent. STOP.
• No. You either have a human or a tail-less Chinese Crested Dog with hands instead of paws. The former can be claimed as a dependent; the latter cannot.

Because you've made it this far (congratulations!), I'll reward you with some real-life tax tidbits that concern animals:

• You can deduct the cost of shipping your household pets to your new home.
• The cost of purchasing, training, and maintaining a guide dog or other animal trained to assist a person with a physical disability is considered a medical expense.
• Damage or destruction caused by a family pet is not deductible as a casualty loss unless the event is sudden, unexpected, or unusual.
  • New puppy chews the fringe off an antique rug — tragic but not unusual, therefore not deductible.
  • Well-behaved, docile llama suddenly crashes through window and breaks Ming Dynasty vase — highly unexpected and unusual, therefore deductible.
• Cat food, if used to attract feral felines to a vermin-infested junkyard, can be written off. (Such a case actually made it to court, where IRS lawyers conceded that the hungry cats made the junkyard safer for customers by devouring rats and snakes that were on the property.)
• Adoption fees paid to nonprofit animal-rescue organizations cannot be deducted, but donations to these organizations above and beyond the adoption fee are deductible. Make sure you get a receipt.
• Boarding fees for pets while away on a business trip are not deductible.
• The upkeep for guard dogs, if used to protect business assets such as inventory, are deductible by the business as an operating expense. An animal that looks and acts the part is highly recommended. (Looks legit and keeps IRS agents from getting too close. Two birds, one stone.)

Millions of workers can take credit

With all the hoopla about the one-time rebates that most taxpayers will receive starting in May, it might be easy to overlook a valuable tax benefit for workers with modest incomes.

It’s available tax year in and tax year out, and could reduce or even eliminate any federal income taxes they owe. For some folks, it even provides a refund of hundreds of dollars. You know, just like the much-talked-about rebates will do.

This tax benefit has a name that’s hard to remember and requirements that are a challenge to understand: the Earned Income Tax Credit.

But its value to certain families is undeniable.

For example, a single working mother with young children who earned less than $37,783 in 2007 could qualify for a credit of as much as $4,716. For detailed information, check out this article on the Earned Income Credit.

To qualify, you must be between the ages of 25 and 65 and you must have income from working that is less than:

• $12,590 if single, $14,590 if married with no children
• $33,241 if single, $35,241 if married, with one child
• $37,783 if single, $39,783 if married, with two or more children

The maximum credits available:

• $428 for taxpayers with no children
• $2,853 for taxpayers with one child
• $4,716 for taxpayers with more than one child

If you take the credit, you’ll have lots of company. More than 22.4 million taxpayers shared in $43.7 billion dollars in Earned Income Credits in 2007. Those who took the credit accounted for 18 percent of the 124 million tax returns filed.

Even so, the IRS estimates that 20 to 25 percent of those eligible for the credit don’t claim it. That’s at least 5.6 million people missing out on hundreds of dollars each tax season.

For those who qualify, TurboTax offers free tax-preparation software and e-filing for federal tax returns and for certain state returns. Visit this site for more information or to get started.

In 2008, many workers who qualify for the credit should be doubly rewarded for filing a tax return. First off, they’ll get their credits. And then, if they have earned income of more than $3,000, they could also qualify for a rebate of at least $300 per person or $600 per married couples and $300 per child. Good things can come to those who file.

Can I claim my pet as a dependent?

Pets are a lot like children. Look at their similarities: they're cute, loving, playful, attention-craving, and they can't wait for you to get home. They also poop, pee, whine, ignore your commands, and break stuff. (Hey, it's not all lovey-dovey.)

Like children, pets rely upon you to support them, which can get expensive — especially if you buy your supplies at that big-box PetStore. Add to that veterinary bills, grooming, licenses, cleanup and repairs caused by pet damage, not to mention the cost of the pet itself... ouch.

According to the American Pet Products Manufacturers' Association, Americans are expected to spend more than $10.5 billion on their pets in 2008. (That's billion with a B, as in "B-1 Bomber").

So in light of that grim statistic (at least for those who don't own PetStore stock), it doesn't seem that silly for tax-paying pet owners to wonder: "Am I allowed to claim my pet as a dependent on my tax return? Can I get some compensation for my contribution to the $10.5 billion? Puleeeze?"

Um, no. You’re more than welcome to try — people have — but if caught you better have plans for someone else to take care of your beloved pet(s) while you are on the sort of "vacation" made famous by Al Capone.

Although the IRS doesn't specifically spell it out, it is tacitly implied that dependents — at least for taxation purposes — must be human.

Now before you argue that your dog thinks he's human or that your parakeet acts more like a human than your 2-year-old (I believe you! I believe you!), hear me out.

The rationale behind this "must-be-an-actual-human" requirement is that children of the species Homo sapiens have the potential to grow into adult taxpaying Homo sapiens, whereas dogs, cats, birds, gerbils, fish, rocks, etc., do not. It's as though the IRS is sowing the seeds — or at least providing the fertilizer — for growing the next crop of taxpayers.

Here's another way to look at it. Pets do not pay taxes, so why should the government provide tax incentives to the owners of these adorable freeloaders? Ahhhh, now do you see? Makes sense, huh?

Next week, I'll tell you how to distinguish between human dependents and animal dependents.

Your dependents, it's all so relative

Tax season is when we look at our family and friends in a different – and tax-deductible – light.

Can I count my sister-in-law as a dependent? How about my live-in girlfriend and her unemployed brother? What about my golden retriever?

Believe it or not, the IRS code tells us that any of the above, except the retriever, could qualify as a dependent under the right circumstances.

Why are dependents good to have at tax time?

For each dependent you can legally claim, you get a $3,400 deduction on your 2007 taxes. So if you are in the 25 percent tax bracket and have three dependents, worth $10,200 in deductions, you’ll save $2,550 on your taxes. (However, for some higher-income earners, deductions are reduced or eliminated.)

In our society, where growing numbers of people live together who aren’t married or aren’t related, it’s good to know the rules.

The following guidelines only apply to adult dependents. (The IRS has all sorts of rules for dependent children, particularly those whose parents are divorced. For information, see IRS Publication 504: Divorced or Separated Individuals.)

If you claim an adult as a dependent, that person must meet several IRS qualifications:

·        Had less than $3,400 of gross income during the year.

·        Received more than half of his or her support from you.

·        Did not file a joint income tax return with anyone else.

·        Is a citizen or resident of the United States or a resident of Canada or Mexico.

·        Is a relative or a member of your household for the full year.

As you can see, this last requirement opens your door - and your tax return - to many potential dependents, as long as you’re willing to support them.

So, to use our initial example, your live-in girlfriend and her brother who also lives with you could qualify as your dependents.

But what if you support someone who doesn’t live with you, such as your elderly mother?

The IRS allows you to count as a dependent a whole list of relatives who don’t also have to occupy your home, provided you provide more than half their annual support:

• Children, stepchildren, eligible foster child, grandchildren or great grandchildren
• Siblings, including half or step siblings
• Parents, grandparents, or any other direct ancestors
• Stepparents
• Aunts or uncles
• Nieces or nephews
• Fathers-in-law, mothers-in-law, sons-in-law, daughters-in-law, brothers-in-law, or sisters-in-law

Unfortunately, your golden retriever is not among these. Nor is your gardener or your nanny, even though it might seem you support them. They’re your employees, not your dependents.