When you’re classifying transactions in QuickBooks Online (QBO) or preparing year-end accounts, situations often arise where an expense serves both personal and business purposes. One common example is when a client runs a business from home and needs to replace part of their property used for the business.
Let’s walk through a real-world scenario and break down how to classify and allocate such expenses correctly under IRS guidelines, ensuring compliance and accuracy.
The Scenario
Imagine this:
Client: John, a small business owner operating a plumbing service from home.
Home setup: He has a 3-stall garage; one stall is used exclusively and regularly for parking his business truck and storing tools.
Transaction: John pays $4,500 on August 4, 2025, as a 50% deposit to a company called On Track Garage Fargo ND for replacing all garage doors.
Now the question arises:
Can this expense be deducted as a business expense? If yes, how much?
Understanding IRS Guidelines
The IRS allows deductions for expenses that are:
Ordinary and necessary for your trade or business.
Exclusive and regular in use for business purposes.
Since John uses one of the three garage stalls exclusively for business, he can allocate a portion of the expense for that business use.
Calculating the Business Portion
John has 3 garage stalls, and 1 stall is exclusively for business:
Business Use Percentage=1 stall3 stalls×100=33%\text{Business Use Percentage} = \frac{1 \text{ stall}}{3 \text{ stalls}} \times 100 = 33\%
So, 33% of the cost of replacing the garage doors can be claimed as a business expense.
Expense Breakdown
Total Cost: $4,500 (deposit)
Business Portion (33%):
$4,500×33%=$1,485\$4,500 \times 33\% = \$1,485
Personal Portion (67%):
$4,500×67%=$3,015\$4,500 \times 67\% = \$3,015
How to Record in QuickBooks Online
Here’s the best practice:
Do NOT record the entire $4,500 as a business expense.
Instead, split the transaction:
Step 1: Split the expense
Business Portion ($1,485):
Category: Repairs & Maintenance (or Fixed Asset > Building Improvements if the cost should be capitalized).
Memo: 50% deposit for garage door replacement – 33% allocated to business stall.
Personal Portion ($3,015):
Category: Owner’s Draw (if paid from business account).
Memo: Personal portion of garage door replacement.
Step 2: Decide on capitalization
If the total project exceeds your capitalization threshold (e.g., $2,500) and it adds value or extends life, you might classify the business portion as a Fixed Asset instead of an expense.
If not, classify it under Repairs & Maintenance.
Example Journal Entry
For business books:
| Date | Account | Debit | Credit |
|---|---|---|---|
| 08/04/2025 | Repairs & Maintenance | $1,485 | |
| 08/04/2025 | Owner’s Draw | $3,015 | |
| 08/04/2025 | Bank | $4,500 |
Professional Note for the Client
“Since one of your three garage stalls is used exclusively for your business, we allocated 33% of the garage door replacement cost as a business expense, and the remaining 67% as personal use. This ensures compliance with IRS guidelines.”
Key Takeaways for Accountants and ACCA Students
Always check exclusivity and regularity of business use before allocating costs.
Split personal and business portions to avoid overstatement of business expenses.
Decide between expense vs. capitalization based on the nature of the improvement and your firm’s capitalization policy.
Document the rationale clearly for audit purposes.
Pro Tip: If the business use was less than exclusive (e.g., shared space), the deduction would not be allowed. Exclusive use is key for home-office-related deductions.
✅ In short: Yes, a portion of the garage door replacement can be deductible if it meets IRS requirements. Use the correct percentage allocation, split the expense in QBO, and maintain proper documentation.
👉 Do you want me to now create a LinkedIn-style condensed version of this post (engaging & under 300 words) or expand this into a detailed guide for your firm’s website (with visuals, step-by-step QBO screenshots, and IRS references)?
