For freelancers, understanding the difference between business and personal expenses can mean saving thousands on taxes or getting penalized by the IRS for misclassifying deductions.
So, it's important to understand what can legally be considered a tax-deductible business expense on your tax return. If you're uncertain how you can save money with tax deductions, this article may be helpful: How do I save money with tax deductions (write-offs)?
The good news is that there are many expenses you can deduct as business expenses. Everything from your home office, marketing costs, airline tickets, lodging and business meals can be classified as a deductible business expense.
Business expenses must be considered ordinary and necessary for your business, with clear records of the merchant, expense amount and date. This is often why people consider saving a photo of paper receipts to be good practice for business expenses. It helps with accurate record-keeping to avoid a tax audit. Clearly separating expenses between a business and personal bank account is another way to avoid triggering an IRS audit.
Personal expenses are all other expenses that are not necessary for your business to operate. If you're trying to file tax deductions for trips that were both personal and business-related, or are making purchases that are used for both business and personal use, it's best to be careful trying to file it as a business expense.