Business Expenses Vs. Family Expenses

Let’s talk about family expenses versus business expenses. Starting a small business as a stay-at-home mom is no walk in the park. However, the COVID-19 pandemic has highlighted new opportunities for entrepreneurial mothers. Indeed, with activities shifting online, it’s becoming easier for ambitious mothers to start an online venture. In a previous article, we’ve already considered the challenges of juggling entrepreneurship and motherhood. Indeed, it can be tempting to rely on friends in the same way you do in your day-to-day life as a mother. However, starting a business with friends could backfire horribly! If you want a business partner, you need to make sure they fit your business vision and needs and provide reliable assets, whether as complementary skills or investment. Additionally, keeping a separate schedule between family time and business time can be challenging. 

However, once you’ve managed to separate your business life from your mother’s life, you also need to compartmentalize your expenses. Running a home-based business makes it tricky for mothers to identify business expenses from family expenses.

Woman working on her laptop trying to distinguish between business expenses and family expenses

Consider a vehicle that works for family and business

When you run a home-based digital business, it can be tricky to justify the purchase of a vehicle. For instance, if you’ve started marketing or consulting services during the pandemic, you may not be able to buy the latest Chevy Equinox for sale and pass it as a business vehicle. However, you can deduct a portion of the insurance and commuting costs if you need to meet clients or travel for work. Additionally, if you need to purchase a new car for your household, you can also find ways to deduct some of your business costs. For instance, if 20% of your vehicle usage relates to business trips, you could ensure that your tax return reflects the partial business investment.  

Working on your personal device

There’s a reason why most people consider starting an online business: You can use the equipment you already own. As most of us have a personal laptop, you can keep your business costs low by repurposing your personal device for work. What does it mean in terms of tax reductions? 

The bad news is that you can’t deduct the cost of your old personal device for work. You also can’t put your home Internet fees on your business expenses. However, you can calculate tax deductions based on your business use. For example, if you dedicate 25% of your Internet usage to business, you can apply the same reduction to your tax return. 

Additionally, software and technology investments that you’ve made only for your venture are deductible in full, such as the addition of a VPN or signing up for the premium version of Grammarly. 

I got an idea during the holiday… Who pays for it?

Creativity is almost impossible to quantify. You could come across a fantastic business idea while you’re on holiday with the kids. Can you deduct leisure costs from your tax return because they’ve inspired your business? The answer is, unfortunately, no. You can, however, remove the costs your idea has generated. You’ve had a brilliant stroke of genius while being on holiday. The vacation budget remains a family expense. However, additional purchases to bring your idea to life, such as notebooks, pens, and phone calls to a consultant, are business-related. 

Ideally, if you are starting a home-based business, you need to keep your business and family expenses separate. However, it can be tricky to put every purchase in the correct category. When common sense fails to provide guidance, remember to check with a professional accountant to avoid tax mishaps.

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