What Constitutes a Business Expenses Vs. a Personal Expense?

* The information contained in this article is general in nature and is not intended as tax advice. 

When your office is outside the home, business expenses are easy to delineate.  When you work from home, the boundaries are blurred.  For instance, you must have a computer to do your job, but you likely don't use your computer just for work.  Maybe in the evening you stream your favorite Netflix show, and maybe the kids use the computer for homework.  Likewise for the Internet.  You must have the Internet for work, but you also use it for day-to-day family life.

How do you determine what is a business expense and what is a personal expense?

What Constitutes a Business Expense?

According to the IRS, a business expense is something that is ordinary and necessary for your business.  For instance, if you're a freelance writer, a computer and the Internet are both ordinary and necessary for your business. 

What Constitutes a Personal Expense?

Likewise, the IRS says that "personal, living, or family expenses" cannot be deducted as a business expense.  If you travel to Hawaii for business and take the family with you, you can deduct your expenses, but the family's expenses are considered personal and cannot be deducted.

How to Handle Items You Use for Business and Personal Purposes

For those items that you use for business and personal, the IRS allows you to deduct the portion that you use for work.  For instance, if you use your computer 80% of the time for work and 20% of the time for personal, you can deduct 80% of the expenses because you used that portion for business.

Don't forget, if you use your car for business, you can either deduct mileage or the business portion of your actual expenses for operating the vehicle.

Likewise, if you use an area of your home solely for your business, you can deduct that portion of the expenses for operating your home. 

Of course, where these gray areas are concerned, consulting an accountant is always recommended.  

In addition, you can find more information at the IRS' website, Deducting Business Expenses.

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