As a business owner, it’s easy to have expenses that serve both personal and business purposes — your car, phone, or even your home office. The IRS allows deductions only for the business-use portion of such expenses, and understanding how to properly allocate them can save you both stress and money.

1. Business vs. Personal Expenses

Business expenses must be ordinary and necessary for your trade or business.

• Ordinary means common and accepted in your line of work.

• Necessary means helpful and appropriate for running your business.

Personal expenses — such as groceries, vacations, or home bills unrelated to business — are never deductible. When an expense covers both personal and business use, you can only claim the part that applies to business.

2. Common Mixed-Use Scenarios

Vehicle Use

If you use your car for both personal and business purposes, only the business-use percentage is deductible. Track your mileage throughout the year and divide business miles by total miles to determine the deductible portion. Commuting from home to a regular workplace is considered personal use.

Home Office

If you use part of your home exclusively and regularly for business, you can deduct the business portion of home-related expenses such as rent, utilities, insurance, and repairs. Measure the square footage of your office and divide by the total area of your home to determine your percentage.

Internet, Phone, and Utilities

For items like a cell phone or internet plan, allocate the cost based on actual business use. If 60% of your calls or data usage are for business, deduct 60% of the expense.

3. What You Cannot Deduct

• The personal portion of any expense.

• Expenses that cannot be reasonably separated between business and personal use.

• Commuting costs between your home and regular work location.

• Personal living expenses, such as family vacations or meals with no direct business purpose.

If an expense is primarily personal with a small business benefit, it’s generally not deductible.

4. How to Allocate and Document Properly

Good recordkeeping is everything.

• Mileage logs for vehicles should include the date, destination, business purpose, and miles driven.

• Home office records should include floor plans, measurements, and utility bills.

• Phone and internet records should show usage summaries or invoices that clearly identify business vs. personal activity.

• Be consistent from year to year in your allocation method.

Without documentation, the IRS can disallow the entire deduction.

5. Example

If you drove your SUV 25,000 miles last year — 18,000 for business and 7,000 personal — you can deduct 72% of your vehicle expenses. So, if your total car expenses were $10,000, your deductible portion would be $7,200.

6. Why It Matters

Mixing business and personal expenses is one of the most common red flags in an IRS audit. It also creates messy records that make your business look less professional. Keeping clear boundaries between business and personal spending — and maintaining proper documentation — keeps your deductions valid and your books audit-ready.

Final Thoughts

When an expense benefits both your business and personal life, the key is simple:
Deduct the business portion, document it, and keep your personal spending separate.

It’s better to take a smaller, well-supported deduction than risk losing it all during an audit.