If you’re running a business, you probably know all too well how the line between “business” and “personal” expenses can get a little…fuzzy.
It’s tricky to keep ’em straight, for sure! But knowing the difference is super important when tax season rolls around. The last thing you need is to land yourself in hot water with the Internal Revenue Service (IRS) over what’s deductible and what’s, well…not.
We’re here to clear up the confusion and show you which costs are deductible as business expenses, and which ones will (sadly!) have to come out of your own pocket. But trust us, it’s better to sort this out now than scramble later!
Alright, enough chit-chat—let’s get down to…taxes!
What counts as a business expense?
You probably already have a fairly good idea of some of the expenses your small business racks up.
After all, you see them disappearing from your bank account every month, taking their toll on your business income. We’re talking rent, utilities, employee salaries, and all that fun stuff.
But there might be some costs you’re paying that you didn’t realize can be written off as business expenses.
In case you weren’t sure, here are some common examples of business costs:
- Office supplies: Pens, paper, software, printers – even that fancy new planner you absolutely needed to stay organized – all count as business expenses.
- Travel costs: Whether you’re driving to a meeting or jetting off to a conference, those flights, hotels, mileage, and meals you buy for business are all deductible (cue the happy dance!).
- Marketing and advertising: The money you fork out on marketing campaigns, social media ads, or sprucing up your website? You guessed it – fully deductible!
- Professional services: Paying for legal advice, accounting help, or even a consultant who’s going to help your business scale – definitely not a personal expense (phew!).
- Home office: Great news! If you’re running your business from home, you can claim part of your rent, utilities, and internet as a business expense. Hello, home office deduction!
- Insurance: Any business or health insurance premiums you have in place are also fair game for deduction.
- Training and education: Courses, seminars, or workshops you or your employees take to level up your skills or knowledge? Write them off!
- Bank fees and interest: If you’ve got business accounts or loans, you’ll be thrilled to hear those pesky bank fees or interest payments are also tax deductible.
- Food and beverages: Grabbing coffee with a client or taking your team out for lunch? A portion (pun intended!) of those meals can be written off.
What counts as a personal expense?
While plenty of costs can be written off as business expenses, not everything makes the cut. Some things you pay for might feel business-adjacent, but in the eyes of the taxman, they fall firmly into the personal category – and you can’t deduct personal expenses on your taxes.
So, what kinds of expenses don’t count as business write-offs? Here are a few common ones:
- Work clothes (unless it’s a true uniform or clearly branded): That stylish blazer you wear to meetings? Still not deductible. Clothing only qualifies if it’s a required uniform that isn’t suitable for everyday wear (like medical scrubs or a chef’s coat) or if it has a clearly visible company logo and functions as a form of advertising. Just adding a small, hard-to-see logo won’t cut it – the IRS is looking for something that clearly promotes your business. And sorry, yoga instructors – everyday workout wear doesn’t count, even if you wear it on the job.
- Personal travel: As much as we’d love to write off a trip to the beach as a “business retreat”, personal vacations aren’t deductible.
- Meals (that aren’t for business): Lunch with a client = business expense. Lunch at your favorite café just because = personal expense. We know, totally not fair!
- Family expenses: Paying for family activities, groceries, or medical expenses? Those are – surprise! – personal and not deductible.
- Gas for personal trips: Gas for errands, school drop-offs, and even commuting to the office? Can’t be written off. Only gas for business-related travel (like visiting clients or going to meetings) count as a business expense.
- Personal subscriptions or memberships: That Netflix binge or your gym membership might be essential for you, but sadly, the IRS doesn’t see it that way. Figures!
How to quickly tell if something is a business or personal expense?
If in doubt, a good rule of thumb is to ask yourself one simple question: Is it ordinary and necessary for my business?
Let’s break that down a little more clearly:
- Ordinary: Is this expense common and accepted in your industry? For example, paying for software, office supplies, or marketing is “ordinary” for most businesses.
- Necessary: Is the expense a must for running your business? If yes, it’s likely a “necessary” expense. But if you’re splurging on luxury items that don’t directly benefit your business, it’s a different story.
Think of it this way: if you really need it to keep the business going, it’s probably a business expense. If it’s something you could live without (and it’s more about personal convenience or enjoyment), it’s likely a personal expense.
But don’t fall for the social media myth that you get to decide what’s ordinary and necessary. Just because something feels essential to you doesn’t mean the IRS will agree. Some expenses — like haircuts, personal grooming, or everyday clothing — are considered inherently personal, no matter how relevant they may seem to your work.
And, of course, if you’re ever unsure, it’s always a good idea to double-check with your trusty accountant or tax pro!
Wrapping up!
By now, we hope you’ve got a better handle on what counts as a business vs personal expenses. Knowing what you can and can’t deduct helps you keep things above-board with the IRS. Plus, deducting your business expenses help lower your taxable income, which can save you money when it’s time to file taxes.
Need a quick reference? Check out our Tax Deduction Guide for a list of what’s typically deductible—and what’s not.
Let Tax Savvy Jessica take care of everything
Need a little help separating your business and personal expenses? Tax Savvy Jessica is here to take the weight off your shoulders.
With a TSJ Strategy Plan, we’ll maximize your business’s tax savings on expenses like meals, vehicle costs, office supplies, and other eligible deductions.
We offer comprehensive tax strategy packages along with tax resolution and tax prep services. Our goal? To help small business owners like you keep more of their hard-earned money so you can build the life you deserve.
Take our Fit & Pricing Quiz to find the package that fits your needs.
