Proposed tax deduction for veterinary care draws mixed reaction

National Report — Starting next year, practitioners might be able to add the words "tax deduction" to their discussions about fees.

With a national unemployment rate at 9.6 percent, most small businesses, including veterinary clinics, have a growing number of clients counting their pennies.

But U.S. Rep. Thaddeus McCotter (R-Mich.) is proposing a $3,500 tax deduction for pet-care expenses, including veterinary care.

If House Resolution 3501 for the 2010 tax year passes, will clients be knocking down the door to schedule appointments? Probably not, say two leading veterinary financial consultants.

"Obviously, as a pet owner, I think the idea is great. Is it an intelligent move to make now, looking at our economy as a whole? I'm not sure," says Karen Felsted, a CPA and the executive director for the National Committee on Veterinary Economic Issues (NCVEI).

The American Pet Products Association estimates that pet expenditures in 2009 will reach $45.4 billion, with about $12.2 billion of that spent on veterinary care. Additionally, more than 68 million households own pets in the United States, according to the American Veterinary Medical Association's (AVMA) 2007 U.S. Pet Ownership and Demographics Sourcebook, with each household spending an average of $366 per year for veterinary expenses. That's an estimate of about $25 billion per year in veterinary expenses nationwide.

But considering each household's veterinary-spending average is only $366, it's unlikely the proposed deduction will make much of an impact.

The key would be determining, if the law were to pass, how the Internal Revenue Service would set up the deduction. Would it be itemized under health care or miscellaneous deductions? asks Marsha Heinke, DVM, EA, CPA, CVPM.

"If you itemize deductions and they aren't 'phased out' from a higher bracket status, then you might only get 10 cents or 20 cents of tax savings on $1 of deduction — and I doubt even that," Heinke says.

Even if the deduction were to fall under miscellaneous itemized deductions, Heinke says the amount would still need to exceed 2 percent of adjusted gross income.

"So then the question that comes for the taxpayer who has knowledge is, 'Would I spend an extra $100 to get maybe a $2 deduction,' " she says. "Is it going to stimulate additional pet-care spending? I think not."

But the deductions might have some effect on a client's willingness to move ahead with an expensive, yet necessary, procedure, assuming they aren't dealing with lost jobs or dire straits, Felsted adds.

"I think you have to look at people who are in reasonable financial shape, and it might spur them to spend a little bit more," she says. "For people who are in bad financial shape, it's hard for me to see who it's going to help."

Another problem with the proposed deduction is that animals' legal status is still that of personal property. Would this proposal open the door for taxpayers to argue that maintenance and care of other personal property items also should quality for tax deductions?

"Pets are personal property, not children," Heinke points out. "Like a Harley or toaster oven, should personal tangible property be allowed for deduction?"

Additionally, the resolution proposes that deductions apply only to animals that are "legally owned."

"And how do you determine that an animal is 'legally owned' by the taxpayer? Will they be issued ID numbers? And who will pay for that bureaucratic mess?" she asks. "The more you dig into the inferences, the more this looks like a total 'non-starter' from my perspective," Heinke says.

AVMA has supported bills containing tax breaks that benefit the veterinary industry in the past but has not yet issued any statements on this resolution, says AVMA Governmental Relations Division Director Dr. Mark Lutschaunig, adding he doesn't see the resolution moving forward anytime soon.

McCotter's office didn't return phone calls regarding his thoughts behind the resolution, which was referred to the Committee on Ways and Means with no future hearings scheduled as of press time.

The downside

Even if it prompted some people to spend more for pet care, the bill has a downside, consultants say. For example:

1. How many would spend $100 more to get a $2 deduction?

2. Would it lead some to seek tax deductions for other personal property?

3. How is a "legally owned" pet defined?