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Profit From Cat Breeding -

Hobby Or Business?

Most breeders will say there's no profit from cat breeding. But you still want to try your hand in it. The question is, is it just a hobby or do you intend to make some profit from it?

This is a very tricky question that borders intent with reality. If you are breeding purebred cats it pays to be aware of the possible ramifications with the IRS. Generally any money you make over a set amount must be reported. This generally means if you have three litters of kittens and sell a few kittens for $1500 total then you must claim this as income.

However, with that you can also deduct the expenses that you have proof of. This can include cat food, veterinary costs and cleaning expenses related to the cats as a business expense. You must keep receipts and documentation.

Others interpret the definition to be intent. Do you intend to make a profit from cat breeding? Few people intend to seriously make money with purebred anything as the costs normally add up to make profit little more than a dream. Many breeders are happy to cover their expenses. However just because you don’t *intend* to make a profit doesn’t mean on some years you won’t and that must be claimed according to IRS regulations.

Unfortunately with this comes other potential issues including the wrath of those who say anyone who profits from breeding is a mill and should be turned in for legal action! What’s a breeder to do?

To add to the confusion some states or counties define what is and is not a business on volume of animals sold. This would put someone selling 30 kittens for $50 a business while the breeder selling one for $700 not required to have licensing.

There is an IRS provision called the “hobby loss rule” that requires a motive of profit in order to deduct losses. When intent to make a profit is there they will look at professional appearance – business name, invoices, separate bank account and records, daily log or journal and other indications of intention of profit.

However, if there is not an intention to make a profit, section 183 of the IRS code provides deductions are not allowed. In one case involving horses terminology of “babies” vs “foals” showed a lack of professionalism and therefore deductions were disallowed. Under long standing IRS rule if you make a profit in 3 of 5 years you are a business.

From the IRS standpoint they just want a part of the income no matter where it comes from. However from the standpoint of other agencies it can be far more sinister. Your use of legal advice on a local level would be money well spent and, if warranted, an accountant. 

For the person with just a few cats this isn’t likely to be a life altering designation but legal eagles have a different view of the law and sometimes the perception of the law. If it's just a hobby and you truly don’t intend to make any profit from cat breeding you can simply list the funds as extra income if it happens. Keep in mind once you designate it as a business of breeding it can change perceptions considerably.

Hobby or business, you should play it safe and know where you stand!

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