Started a business training police dogs. What category does the purchase of the dog fall under?

[Coleen3]

Do you own the dog and use it to help train other dogs?

[mmrowlandhmt]

We purchased and own the dog. Once he is finished with his training, he will be sold to a department. He is not used to help train other dogs.

[Coleen3]

And this is what you will do with each dog? Will you own buy them and sell them in the same year?

[jakemac33]

Yes the process will be the same with each dog. It's hard to know if the dog will be ready to be sold. It may fall within the same year, or it may not, like this case.

What is the best way to handle both situations? We are just beginning this business. Taking it slow with one dog for now.

[Coleen3 · Accepted solution]

The IRS assigns assets a useful life. While there is not one for dogs specifically, both livestock and racehorses have useful lives anywhere from 3 years for horses and hogs to 7 years for breeding animals. If your dog, as an asset, was entered into service and taken out of service out of service in the same year, depreciation is not allowed.

The better way is to include them as inventory. As each dog comes in, you record the purchase price in Cost of Goods Sold. As that animal leaves, you remove them. You record the sales price as gross income. The COGs will act as your basis for the sale.

[jakemac33]

Thank you Coleen for detailed response!