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I know that when creating a business (specifically an LLC), I need to keep track of business expenses.

But what exactly constitutes a business expense? If I buy a camera that I use for the business, but also for personal use, is that a business expense, or are business expenses things that I only use for the business?

Am I supposed to mix personal and business items like that?

I'm interested for bookkeeping purposes. Do I need to keep track of those expenses?

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The IRS summarizes the rule as follows:

Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.

For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and is not deductible. Refer to chapter 4 of Publication 535, Business Expenses, for information on deducting interest and the allocation rules.

Business Use of Your Home

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Refer to Home Office Deduction and Publication 587, Business Use of Your Home, for more information.

Business Use of Your Car

If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses. For a list of current and prior year mileage rates see the Standard Mileage Rates.

In practice, a mixed use expense will often be disallowed unless you can document in some way the percentage of use that was business related (e.g. with some kind of log).

For inexpensive items, it is often cheaper and easier from a bookkeeping perspective to have dedicated business and dedicated personal items, even if it means that there is some duplication of purchases.

Also, if property is owned by the LLC, but used for personal purposes by the owner of the LLC, this will very likely destroy the limited liability protection associated with the LLC. Comingling of business and personal property is a leading reason to pierce the company veil.

  • regarding "property owned by the LLC" - is that just anything that's bought using the LLC's bank account? So when in doubt (i.e. I might use something for personal use), I should buy using my own money (and don't add it to the books) and share it with the LLC? Is that kosher? – pushkin Oct 13 '18 at 5:53

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