Source: https://store.pettrustlawyer.com/tax-deductions-for-pets/
Timestamp: 2019-04-23 22:28:21+00:00

Document:
FOSTERING ANIMALS? RECEIVE TAX DEDUCTIONS!
You, the volunteer, can get tax advantages for expenses below $250 and for expenses above $250.
If the individual expense is below $250 then nothing is required. Just take it as a tax deduction.
If the individual expense is above $250 then a letter from the charity acknowledging that you had expended funds on behalf of the charity's mission is required.
If the charity is agreeable to reviewing the expenses you made throughout the year and providing a letter at the end of the tax year acknowledging that the total amount you spent as a volunteer was more than $250, that would be sufficient.
According to the IRS the cost of buying, training, and maintaining a service animal to assist an individual with disabilities may qualify as medical care. Under IRC Sec. 213 if the person (1) is using the service animal primarily for medical care to alleviate a mental defect or illness, and (2) would not have paid the expenses but for the disease or illness qualifies. INFO 2010-0129.
We left the language below in technical terms.
Your accountant and attorney need this.
It's not really fun reading.
Everyone has a $5.49 million lifetime gift tax exclusion (2017). This means every individual can transfer up to $5.49 million of case or property gift tax-free ($10.98 million if he is married and his spouse consents to split the gift). In addition, everyone can make annual tax-free, non-reportable gifts of up $14,000 to an unlimited number of individuals and certain appropriately structured trusts ($28,000 if they are married and their spouse consents to split the gift). This amount, referred to as the annual gift tax exclusion, is indexed for inflation.
Furthermore, at death, everyone has a $5.49 million estate tax exclusion which can shelter $5.49 million in cash or property from estate tax (2017). To the extent an individual uses any of his $5.49 million gift tax exclusion his estate tax exclusion will be reduced. This means that if an individual uses all of his $5.49 million gift tax exclusion, he will have no further estate tax exclusions at his death. Having said this, the gift and estate tax exclusions are indexed upward for inflation every year so future opportunities for gift and estate tax savings may be available.
How does the above discussion apply to pet trusts? It is simply this: A pet owner can make tax-free gifts up to $5.49 million to a pet trust to the extent he has not used any of his $5.49 million gift tax exclusion ($10.98 million if he is married). In addition, the pet owner can structure the pet trust so that he can make annual tax-free gifts of up to $14,000 to it ($28,000 if he is married). The “beneficiary” of the pet trust is the pet guardian selected to watch after the pet. Thus, generally, for gifts to the pet trust to qualify for the annual gift tax exclusion, the pet guardian must be notified of the gifts and be permitted to withdraw them for a limited period of time 1.
Statutory pet trusts are triggered by a Will and cannot be funded until the pet owner’s death.
The above gift tax rules are only applicable to Stand Alone pet trusts, such as the Pet Protection Agreement® pet trust, which must be created while the pet owner is alive.
Finally, if a pet owner funds a pet trust at his death, those funds will be taxable for federal estate tax purposes unless his taxable estate is less than the $5.49 million estate tax exclusion (the pet owner’s available estate tax exclusion will be less if he used any of his gift tax exclusion; note also, that his state’s threshold for imposing estate tax may be significantly lower than $5.49 million).
In general, when a pet owner transfers funds and other property to the pet trust – including the pet itself – by gift, bequest, devise, or inheritance, these receipts are not treated as taxable income,4 although they may be subject to gift or estate tax as previously discussed. This means that when the pet owner gives the pet or funds to the pet trust, they will not be taxable.
However, interest, dividends and other income generated by trust investments are subject to income tax.
The pet trust’s income generally is taxable either to the pet owner, or to the trust, in the case of a Stand Alone pet trust that a pet owner creates during his life. If the pet owner can revoke the trust or is otherwise deemed to own the trust for income tax purposes, all of the trust’s items of income, loss, deduction and credit will be reportable on his income tax return, rather than trust’s return. This type of trust is referred to as a grantor trust and, in effect, allows the pet owner to make tax-free gifts to the trust by paying its income tax; this way, the trust funds can grow tax-free without being depleted by income tax.
Nevertheless, if the pet trust is not a grantor trust or ceases to be one when the pet owner dies, it will be a separate taxable entity and will pay tax on its own income.
Nevertheless, a pet trust is not taxable on trust income (other than capital gain) to the extent it is distributed to the pet’s pet guardian in the case of a traditional pet trust; instead, the distribution is deductible by the trust and taxable to the pet guardian.
When all is said and done, either the trustee or the pet guardian pays the income tax on the trust’s income depending on whether trust income is accumulated or distributed each year. If the pet owner intends to compensate the pet guardian for any income tax liability associated with trust distributions, this will need to be taken into account when distributions are made.
What if the pet, rather than a pet guardian, is the trust beneficiary, such as with a Statutory pet trust? Because the IRS does not recognize a pet as a trust beneficiary, the pet cannot be taxable on trust distributions that it receives. In addition, the pet’s pet guardian cannot be charged with the tax liability because the pet guardian serves only as an agent of the pet and does not consume the distributions for his own benefit (similar to a court-appointed guardian of a minor or incapacitated person). This could have created a lucrative tax loophole because no one (neither the pet nor its pet guardian) would have been subject to income tax on the trust income paid to or for the benefit of the pet. The IRS quickly recognized the problem, and in Rev. Rul. 76-486,8 held that an enforceable pet trust established under a state statute is taxable on all of its income, regardless of whether any distributions are made for the benefit of the pet beneficiary.
5This threshold, which is inflation adjusted, applies to top income tax brackets for 2017 beginning at 418,400 for single and $470,700 for married taxpayers filing jointly in 2017.
6This threshold, which is inflation adjusted annually, applies in 2017.
7Commentators appear to believe this because Rev. Rul. 76-486 provides that a pet trust is subject to the tax rates imposed by IRC §1(d) which are the tax rates for married individuals filing separately. At the time of the Ruling, IRC §641, which specifies the tax rates applicable to estate and trusts, referenced IRC §1(d). As a result, the tax rates for married individuals filing separately, applied to all estates and trusts, not just pet trusts. However, IRC § 641 was subsequently amended for tax years beginning after December 31, 1976 by replacing the reference to IRC §1(d) with § 1(e), with the effect that estates and trusts (including pet trusts) are no longer subject to the more favorable rates applicable to married individuals filing separately but are now subject their own more compressed tax rates.

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