"Martha, Can I Write This Off?" Business vs. Personal Expenses Made Simple
"Martha, can I write this off?" is one of the questions I hear most often, and I love it, because it means a business owner is starting to think like a CEO. Whether it's a new phone, a lunch with a client, or the gas in your car, knowing what counts as a business expense can save you money at tax time and a lot of stress throughout the year.
This is also a list worth bookmarking, since these questions come up all year long and especially when you're organizing your finances ahead of tax time. Let's break it down in a simple way, starting with the one question that clears up most of these situations.
The One Question to Ask First
Before you swipe your card, ask yourself: "Would I be spending this money if I didn't have my business?" If the honest answer is no, and the purchase helps you run or grow your business, it may be a business expense. If you'd be buying it anyway for yourself or your family, it's most likely personal.
But Martha, What About Things I Use for Both?
Some expenses live in both worlds, like your phone, your internet, or your car. In most cases, only the business-use portion counts as a business expense. If you use your phone for business about half the time, for example, roughly half of that bill belongs to the business, and good records will help you show how you got to that number.
Business Expense Checklist
These are common business expenses for many small businesses, as long as they're ordinary and necessary for your work:
Supplies and materials you use to create your products or deliver your services
Software, apps, and subscriptions you use to run your business
Advertising and marketing, including your website, business cards, and social media ads
Fees for professional help, like your bookkeeper, tax preparer, or attorney
Payments to contractors who work for your business
Business insurance
Business bank fees and payment processing fees
Equipment and tools you use for your work
The business-use portion of your phone and internet
Mileage or vehicle costs for business driving, like meeting a client or picking up supplies
Business travel, like a conference or a trip to meet a client out of town
Education that improves your skills in your current business
A home office, if you have a space used regularly and only for your business
Some business meals, like meeting a client to talk about a project (special rules apply, so check with your tax preparer)
Personal Expense Checklist
These are generally personal expenses, even if you pay for them from your business account:
Groceries and household items for your family
Everyday clothing, including the outfits you wear to meet clients
Your regular commute from home to your usual place of work
Family vacations, even if you answer a few work emails while you're away
Gym memberships, haircuts, and personal care
Rent or mortgage payments for your home, apart from a qualifying home office
Your personal car payment, apart from the business-use portion of the vehicle
Your kids' school costs, activities, and allowances
Money you lend or give to family members
Traffic tickets and fines, even ones you received while driving for work
Why Keeping Them Separate Matters
When personal and business expenses get mixed together, it becomes hard to know whether your business is really profitable, easy to miss deductions you've earned, and stressful to sort everything out when tax season arrives.
A few simple habits can make a big difference:
Open a separate bank account and card for your business, and use them only for business.
Save your receipts and note the business purpose, especially for meals, travel, and mileage.
Set aside a few minutes each week to review and categorize your transactions.
If you pay for a business expense personally, record it right away so it doesn't get lost.
Every business is different, and tax rules can change and depend on how your business is set up. Use these checklists as a helpful starting point, and talk with your tax preparer before making decisions about your specific situation.
Bring Your Questions to Pregúntale a Martha
If you have a few expenses you're still unsure about, or money questions that keep sitting in the back of your mind, Pregúntale a Martha was made for you. In a private 60-minute Zoom session, we'll work through up to three of your most pressing money questions together, in English or Spanish, and you'll leave with clear answers and next steps you can actually take.
There's no question too small and no judgment here, so come as you are and let's make your money make sense.
