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Personal vs business expense

What Can I Expense? Personal Vs Business Expense

Even the best-intentioned business owner can fall victim to mixing business and personal expenses. Generally, businesses can deduct expenses from federal taxation (also called a tax write-off). The IRS deems business expenses — expenses common in your trade or profession that help you run your business.

Although this explanation may be clear, there are instances where you’ll be stuck wondering if your expense is business-related or personal expenses. Continue reading to learn more.

Personal Expenses

Personal expenses are those that are not related to a person’s job or income from a business. In fact, these expenses can include individual gains like groceries for your home, gas, bills, family expenses, and entertainment other than business related. They can also include things like transportation, home repairs, and personal care items. Anything you purchase outside of business activities cannot be a business expense, which means you cannot deduct personal expenses.

Business Expenses Explained

Business expenses are costs incurred by a business in carrying out its operations. These can include anything from office supplies to advertising costs. They can also include expenditures associated with running the business, such as salaries and benefits for employees, rent, and utilities.

Each business has its own unique set of expenses that must be accounted for to run a successful company. By understanding the various expenditures that are common to businesses, you will be able to better budget and manage your finances.

Common Business Expense

Here is a breakdown of common expenses.

1. Rent: Rent is typically paid monthly and covers the costs of the mortgage, lease, or rental payments.

  1. Utilities: When running a successful company, don’t forget to factor in utility expenditures incurred through business related activities.
  2. Office Supplies: You should claim every dime you’ve spent on office supplies as a deductible business expense, no matter how big or small.
  3. Subscriptions and Softwares: Don’t let this one slip through the cracks. Any amount you pay towards subscriptions or softwares for your business is deductible on your taxes.
  4. Advertisement: Advertising may be tricky. You can deduct advertising expenses so long as it is ordinary and necessary for your industry.
  5. Employee wages: The money you pay out to employees for job related duties is a deductible business expense. These can be wage employees or freelancers.
  6. Professional fees are also qualified tax deductions. Such fees can be associated with an Attorney or Accounting services.
  7. Travel expenditures that are linked to acquiring new business, expanding, researching, meeting clients, or even professional training can be tax deductions.

Deductible employee wages

Burden of Proof

According to the IRS, taxpayers must substantiate certain expenses on their tax returns. This is known as the Burden of Proof. This just means that you must keep a clear record of business expenses, including amounts related partially or entirely to the operation of your entity.

A business owner can substantiate a claim by maintaining receipts, canceled checks, bank statements, bills, or anything that can support their expense.

Separating Personal and Business Expenses

Separating personal and business expenses is crucial to keeping your business finances in order. It can also help individuals stay within budget and optimize their tax deductions. In addition, keeping track of your entity’s expenses can help maintain a healthy financial balance.

Additionally, separating business and personal expenses can help protect the owner from being personally liable in case of a lawsuit. Finally, separating business and personal expenses will organize finances faster and free up time to focus on other priorities.

Taxpayers who want to keep their taxes as low as possible should take the time to separate their business and personal expenses.

You can use different methods to track your expenses, such as a budget or an expense log. By keeping your business and personal finances separate, you can maintain better control over your money and make better decisions.

Advertising costs

Open Business Bank Accounts and Credit Card Accounts

Organizing business expenses can be a hassle, but opening a business bank account and credit card account can make the process much easier. By having all of your business expenses in one place, you can track how much money is being spent and where it’s going. Plus, opening a business bank account can help reduce the risk of fraud by making it easier to track financial transactions.

Understand The Difference Between Business and Personal Expenses

Personal expenses are expenses incurred for personal use. This may include groceries, clothes, and transportation. On the other hand, a business expense is generally things that relate to the business, such as office supplies and advertising.

There is a lot of overlap between personal and business expenses. However, there are ways to still claim your company’s deductions. For example, an item can be used for both business and personal use. When this happens, you must determine the portion related to business and personal.

Let’s dig deeper.

Say you purchased a vehicle for business and personal use. You must calculate the amount used for business purposes and for personal purposes. Only the business portion is tax deductible.

business or personal expenses, which one

Examples of personal expenses you can’t claim as a business deduction:

  1. A computer that’s not associated with your business and has never been used for such activities
  2. Expenditures you incur connected to a hobby
  3. Clothing, unless it’s uniform or cost of goods sold
  4. Fees for breaking the law, such as parking tickets or penalties
  5. Expenditures incurred traveling to or from work
  6. Personal expense such as a cell phone bill that’s not utilized in the company


It is essential to understand the difference between personal vs. business expenses. Personal expenses are incurred for your individual benefit and are not linked to the company. On the other hand, a business expense is incurred in the course of running your enterprise and is directly connected to your work. Keeping track of your expenses and classifying them correctly is essential for ensuring that you are not overspending and that you are taking all of the tax deductions available to you. Mixing business expenses will lead into trouble with the IRS.