Can I claim expenses for business-related digital storage or backups?

Can I claim expenses for business-related digital storage or backups?

Digital storage and backups have moved from “nice to have” to “non-negotiable” for most modern businesses. Whether you’re a freelancer saving client files, a small company running cloud-based accounting, or a growing team collaborating on large media projects, the reality is the same: data is an asset, and protecting it costs money. So it’s natural to ask: can you claim those costs as business expenses?

In many situations, the answer is yes—business-related digital storage and backup costs are often deductible. But the details matter. The tax treatment can vary depending on where you operate, the structure of your business, what exactly you’re paying for, and whether the storage is wholly for business or partly personal. This article breaks down the typical logic tax authorities apply, how to categorize different types of storage and backup spending, and practical ways to keep your claims clean, defensible, and easy to document.

What counts as “digital storage or backups” for expense purposes?

When people say “digital storage” they often mean cloud subscriptions, but the category is broader. From an expense perspective, it can include cloud storage plans, backup services, physical storage devices, and even related software used to manage and secure backups. Think of it as any cost whose primary purpose is to store, preserve, or protect your business data.

Common examples include cloud storage subscriptions (for instance, extra storage for email or file sharing), dedicated backup services that create versioned backups, business accounts for collaborative file platforms, and fees for additional capacity used by databases or hosted applications. It can also include hardware such as external hard drives, network-attached storage (NAS) devices, backup servers, and removable media—plus accessories like encrypted drives or secure storage appliances used for business continuity.

Some businesses also pay for off-site backup vaulting, archival storage tiers, long-term cold storage, or redundancy packages offered by hosting providers. If the purpose is to preserve business records, maintain availability, protect client deliverables, or satisfy contractual or legal retention requirements, you’re generally in the territory of legitimate business expenditure.

The core principle: business purpose and “wholly and exclusively” tests

Across many tax systems, deductible business expenses share a common theme: they must be incurred for business purposes. Some jurisdictions use language like “ordinary and necessary,” while others use “wholly and exclusively” for business. The phrasing differs, but the general concept is consistent: if you’re paying for something in order to run the business, and the cost isn’t primarily personal, it’s likely to be allowable.

Digital storage and backups usually meet this standard because they support core business functions: record-keeping, project delivery, compliance, collaboration, continuity planning, and risk management. If a business loses invoices, contracts, or client work due to a drive failure or ransomware, the impact can be severe. Backup services and storage are a rational, business-driven safeguard—often required by clients, insurers, or professional standards.

Where it gets complicated is mixed use. If the same storage plan holds both business documents and personal photos, or the same device is used partly for entertainment and partly for client work, the expense may need to be apportioned rather than claimed in full. The stronger your documentation of business usage, the easier it is to justify the claim.

Cloud storage subscriptions: typically straightforward

For many people, the most common expense is a cloud storage subscription. This might be an upgrade to your email storage, a file synchronization plan, or a business collaboration suite that includes storage. If the subscription is used for your business—storing client files, maintaining business records, sharing drafts with collaborators—then the subscription fee is often treated as a routine operating expense.

Subscriptions are usually categorized as recurring service costs, similar to other software-as-a-service tools you pay monthly or annually. If the subscription is solely for business, claiming it is usually clean. If it’s mixed, you may need to claim only the business proportion.

One thing to watch: some storage subscriptions are bundled into larger packages (for example, productivity suites that include email, storage, calendars, office apps, and security tools). When a bundle is used for business, it’s still commonly deductible, but you should treat it as a business software or IT services subscription rather than trying to isolate “storage only” unless you have a clear breakdown.

Backup services versus storage: why the distinction matters

Storage is where data lives. Backup is a process that protects data against loss, corruption, accidental deletion, or compromise. Many providers blend both, offering a certain amount of storage plus backup features such as version history, snapshots, or continuous backup.

From an expense standpoint, both are often deductible if business-related. But it’s still useful to understand what you’re paying for, because backup services can include additional features that strengthen the business case: encryption, immutable backups, ransomware protection, compliance reporting, retention rules, and disaster recovery tools. If you ever need to explain why the cost is necessary, these features can be part of the rationale.

In practice, you can generally treat them similarly as ongoing IT service costs, unless the arrangement involves a large upfront cost or the purchase of a significant long-lived asset.

Physical storage hardware: expense or capital?

Hardware complicates things because it can be treated differently from subscriptions. An external hard drive or NAS device is a tangible asset that may last for several years. Many tax systems distinguish between routine expenses (deducted in the year incurred) and capital expenditure (costs for assets that provide benefit over multiple years). Depending on local rules and thresholds, hardware might need to be capitalized and deducted over time through depreciation or similar mechanisms.

That doesn’t mean you can’t claim it—it means you might claim it differently. Some jurisdictions allow immediate deductions for smaller purchases under certain de minimis rules or capital allowance schemes, while others require depreciation once a cost exceeds a threshold. If you’re buying high-capacity storage arrays, servers, or enterprise backup appliances, there’s a greater chance the purchase will be treated as capital.

Smaller items, like modest external drives used to back up your business laptop, are often simpler. Even if technically capital, the practical treatment can depend on local allowances and how your bookkeeping is structured. The key takeaway is that claiming is usually possible, but the timing of the deduction might differ.

Mixed-use scenarios: personal and business on the same plan

The most common “messy” case is when you use a single storage plan for both work and personal life. For example, you might pay for a large cloud drive that holds business project files and also family photos. Or you might have a personal subscription that you started years ago and later began using for client work. In these situations, a full claim can be difficult to justify because part of the cost supports personal activity.

Many tax systems allow apportionment: you claim the business percentage and leave the personal percentage unclaimed. The challenge is deciding on a reasonable method and being consistent. You might base apportionment on storage usage (gigabytes used for business versus personal), number of folders, number of accounts, or some other defensible metric. The exact method matters less than whether it’s reasonable, documented, and consistently applied.

If you have a clear boundary—such as a separate business account or a dedicated workspace within the service—your position becomes much stronger. Where possible, separating business and personal storage is a practical move that reduces administrative friction and audit risk.

What about backups for a personal device used for work?

Many self-employed people and small business owners use a personal computer or phone for business tasks. If you back up that device, the backup includes both business data and personal data. Again, apportionment may be appropriate. The more your device is used for business, the more of the backup cost can be argued as business-related.

However, there’s a nuance: even on a mixed-use device, business records and client files may be critical. You could justify paying for a reliable backup service primarily because the device contains business information that must be protected. This supports a claim, but it doesn’t automatically mean the expense is 100% business. A measured approach—claiming a proportion that reflects actual business use—is often safer.

If you want the cleanest position, consider separate profiles, separate storage accounts, or a dedicated work device. Even if you don’t change devices, creating a separate business cloud account for business backups can simplify everything.

Data retention, compliance, and regulatory requirements

Some businesses have specific obligations to retain records. Depending on your industry, you might need to keep invoices, payroll records, contracts, client communications, or regulated data for a certain number of years. Digital storage for retention can therefore be a compliance-driven necessity.

If you’re paying for archival storage, secure backup retention, or compliance features such as audit logs and retention policies, these expenses often have a strong business purpose. In many cases, the justification is even clearer than general storage: you’re not paying for convenience, you’re paying to meet legal and contractual duties, protect client interests, or satisfy industry expectations.

This can also apply to professional requirements. For example, consultants, accountants, designers, and legal professionals may have contractual or professional obligations to safeguard client information. A robust backup and storage setup helps fulfill these obligations.

Client work, deliverables, and project archiving

Digital storage is often directly linked to revenue. If you deliver work in digital form—design files, video edits, software builds, research deliverables—then storage can be part of your cost of producing that work. Even after delivery, you might need to retain project files in case a client requests revisions, audits, or additional services.

Project archiving is a particularly strong use case. If your storage plan is sized specifically to keep historical projects, source files, and final outputs, it’s easier to tie the expenditure to business operations. It can also serve as evidence of how the cost scales with business activity: as you take on more projects and produce more data, your storage needs increase.

If you do client work, it’s useful to keep a simple note or policy: for example, “We retain project files for X months/years.” That policy supports the business rationale for storage and can guide internal decisions on when to move old files to lower-cost archival tiers.

Security features: encryption, ransomware protection, and access controls

Modern storage and backup services often include security features that are valuable in their own right: encryption, multi-factor authentication, access controls, data loss prevention tools, and ransomware-resistant backups. These features can strengthen the “business necessity” argument because they relate to protecting confidential business information and client data.

If you handle sensitive data—customer details, financial information, proprietary work—then the decision to pay for secure storage is clearly business-driven. Even if you don’t handle especially sensitive data, basic security and backup are part of responsible business practice. Cyber threats are common and can be costly; many businesses choose secure backup systems to reduce operational risk.

When your subscription tier is higher specifically because of security features (for example, advanced retention, immutable backups, or admin controls), keep the invoices and plan description. It can help demonstrate why the cost is not just a personal convenience but a deliberate business choice.

How to categorize these costs in your bookkeeping

Good bookkeeping makes tax time easier and reduces the chance of misclassification. Digital storage and backup expenses usually fall into categories such as “software subscriptions,” “IT services,” “computer expenses,” or “office expenses,” depending on your chart of accounts and the nature of the cost.

As a general approach, recurring monthly or annual cloud services often sit comfortably under software or online services. Backup platforms that are clearly a service rather than an asset also typically go there. Hardware purchases might go under computer equipment, with separate handling for capitalization if required.

Consistency matters. If you sometimes treat storage as office supplies and sometimes as software, your reports become less meaningful and your expense trail becomes harder to follow. Choose a category that matches how you think about the cost and stick with it.

Evidence and documentation: what to keep

The simplest documentation is the invoice or receipt that shows the vendor, date, amount, and service description. For subscriptions, save the billing emails or download invoices from the provider’s account portal. For hardware, keep the purchase receipt and note how it’s used (for example, “client file backups” or “daily accounting backups”).

Where mixed use is involved, additional evidence can be helpful. You might keep a screenshot of storage usage by folder, a note showing that business folders represent a certain portion of the total, or a written rationale for your apportionment percentage. You don’t need to create an administrative burden; a simple, reasonable method documented once can be enough.

If you ever need to defend the expense, the question is usually: “Was this cost incurred for business purposes?” Documentation that shows business usage and business necessity answers that question.

Home office and sole trader situations: common pitfalls

Many individuals running a small business from home have overlapping personal and business infrastructure: one internet connection, one computer, one cloud account. That’s normal, but it creates pitfalls if you claim everything at 100% without thinking through the business portion.

A common mistake is assuming that because you use something “for work sometimes,” the entire cost is deductible. Another is mixing business and personal expenses in one account and later trying to reconstruct usage without a method. A third is claiming a business expense but paying through a personal account without retaining invoices.

The good news is that you can avoid most issues with a few practical habits: keep subscription invoices, separate business accounts where feasible, and document an apportionment method when you need one. If you scale your business later, these habits will save time and stress.

What if you buy storage as part of a larger package?

Storage is frequently bundled. You might pay for a productivity suite that includes storage, email, office apps, and meeting tools. Or you might pay for website hosting that includes storage and backups. In these cases, the question becomes whether the overall package is a business expense.

If the package is used for business operations—emailing clients, storing work files, hosting your website, maintaining backups—then the overall cost is generally aligned with business purpose. You typically don’t need to split out the storage component unless there’s a clear personal use element. If the package is mixed (for example, a family plan used by multiple people, only one of whom uses it for business), apportionment might be sensible.

The best approach is to treat the bundle as an “online services” or “software subscription” expense and keep the vendor documentation showing what the plan includes.

Upgrades, add-ons, and one-off purchases

Sometimes your cost isn’t a neat monthly subscription. You might buy additional storage for a specific project, pay for a one-time data migration, or purchase an add-on for extended retention. These costs can still be business expenses if they relate to business activity.

For example, if you need to temporarily increase storage capacity to deliver a large client project, the cost is directly connected to revenue generation. If you pay for an add-on that provides longer backup retention because your business must keep records for multiple years, that’s a compliance-driven expense. If you pay for professional services to recover data from a failed drive that contained business records, that can also be business-related.

The rule of thumb is the same: tie the cost to business purpose and document it. A short note on the invoice or in your accounting system can make a huge difference later (“extra storage for Client X deliverables” or “retention upgrade for recordkeeping”).

International work and client data location considerations

If you work with international clients, you may encounter contractual requirements about where data is stored or how it is backed up. Some clients require specific geographic storage regions, certain encryption standards, or formal backup policies. Meeting these requirements can push you toward higher-cost plans or specialized providers.

From an expense standpoint, these requirements strengthen the business rationale. You’re not buying extra storage for personal convenience; you’re purchasing the service level required to win or maintain client contracts. If a client contract specifies data handling standards, keep a copy of the relevant clause along with your invoices. It’s not about expecting a dispute—it’s about making your business records coherent and easy to explain.

Can you claim backups for your phone?

Many people run a surprising amount of business through their phone: calls, messages, email, social media management, authentication apps, photos for marketing, and even document scanning. If you use your phone for business and pay for cloud backups or extra storage to retain business communications and files, there may be a claimable portion.

As with computers, the key is usage. If your phone is heavily business-oriented, you may claim a significant portion of the backup cost. If it’s mostly personal, only a smaller portion might be appropriate. The practical challenge is measuring it, so a reasonable estimate based on business usage patterns is often used, with consistency year to year.

If you manage business content—like product photos, promotional videos, or client communication logs—backing up your phone can be clearly business-related. A short note in your records about how the phone supports the business can help support the expense.

What about “free” storage upgraded to paid because you ran out?

Many services start free and become paid only when you exceed a storage threshold. If the reason you exceeded the free tier is business data—client projects, scanned receipts, marketing assets—then the upgrade may be a business expense. If the upgrade happened because of personal media, then claiming it as business would be difficult.

Often it’s a mix: business files and personal files together push you over the limit. In that case, you can consider apportionment. Even a simple calculation like “business folders take up about 70% of my storage usage” can guide a claim, as long as you can support it with a screenshot or a written record.

The cleaner solution is to separate business storage, but not everyone wants to migrate everything. If you don’t, be honest and consistent about what portion relates to business activity.

Disaster recovery and business continuity: bigger setups, stronger justification

Some businesses go beyond basic backups and invest in broader business continuity solutions: mirrored storage, redundant systems, automated disaster recovery, and multi-location backups. These can be more expensive, but they can also be essential, especially for businesses where downtime is costly.

If your income depends on constant availability—e-commerce sites, software services, agencies with tight deadlines—then robust backup and recovery spending can be easier to justify. The expense is part of operating responsibly and meeting client expectations. Insurance policies sometimes require certain controls, and some businesses implement continuity measures to reduce premiums or qualify for coverage.

Again, this doesn’t automatically dictate whether the cost is deducted immediately or treated as a capital asset. But it does strengthen the argument that the spending is business-driven.

How to make your claim easier: practical best practices

If you want to minimize headaches, here are practical steps that typically make expense claims simpler and more defensible:

First, keep business and personal storage separate when feasible. A dedicated business cloud account is often inexpensive compared to the time saved on apportionment and recordkeeping. Second, pay for business subscriptions using a business bank account or business card, and keep invoices together in your accounting system. Third, label expenses clearly so your bookkeeping tells the story—“cloud backup,” “archival storage,” “client file storage,” and so on.

Fourth, if you must apportion, choose a reasonable method and document it once. Update it when your usage changes materially. Fifth, be consistent: don’t claim 100% one year and 30% the next unless something actually changed, and if it did, note why. These habits reduce the chance of confusion later and can make professional review by an accountant much quicker.

When might you not be able to claim it?

You generally can’t claim costs that are purely personal. If you pay for extra cloud storage solely for family photos, personal videos, or entertainment downloads, that’s not a business expense. Likewise, if the storage cost is primarily personal and business use is trivial, claiming the expense would be hard to justify.

Another scenario is when storage is used for something that isn’t part of your business activity. For example, if you keep large personal archives unrelated to your work, even if stored on a device you sometimes use for business, it doesn’t become deductible just because it’s on the same hardware. The purpose of the expense remains the deciding factor.

Finally, some expenses can be disallowed if they’re not properly evidenced. Even if a cost is legitimate, missing invoices, unclear descriptions, or lack of a reasonable apportionment method can weaken your position. Documentation is not just bureaucratic—it’s the practical foundation for claiming.

Common examples and how they’re typically treated

Consider a freelance designer who pays monthly for a cloud storage and collaboration plan used to store client designs and share proofs. That is usually a normal business operating expense. Consider a tradesperson who pays for a phone backup plan because they store job photos, quotes, invoices, and client contact records on their phone. A portion (or potentially most) of the cost may be claimable depending on business use.

Now consider someone who pays for a large cloud plan mainly for personal media, but also keeps a small folder of invoices there. Claiming the whole subscription would be risky; apportionment would be more appropriate, and the claim might be small. Or consider a small company that buys a NAS device used solely for business backups and record retention. That’s typically claimable, but it may be treated as equipment rather than a recurring service, which can affect how the deduction is recognized.

These examples show the pattern: clear business use and clear business purpose make claims easier. Mixed use requires proportionate claims and better documentation.

What to tell your accountant or bookkeeper

If you work with an accountant or bookkeeper, make their job easy. Tell them what the service is, how it’s used, and whether there is any personal component. For mixed-use subscriptions, give them your apportionment percentage and your method. For hardware, tell them whether it’s dedicated to business, how long you expect to use it, and whether it replaces an old business asset.

If you’re unsure about how to treat a large purchase—like an expensive storage server, an enterprise backup system, or a multi-year contract—flag it early. The accounting treatment can depend on the size of the expense and local rules. The earlier you categorize it correctly, the less likely you’ll need adjustments later.

Final thoughts: yes, usually—but make it clean and defensible

Business-related digital storage and backups are commonly claimable because they support essential activities: storing business records, collaborating with clients, protecting deliverables, meeting retention obligations, and safeguarding data against loss and cyber threats. Subscriptions are often straightforward; hardware may require different handling depending on whether it’s treated as an asset. Mixed-use situations are the main source of complexity, and apportionment is often the practical solution.

If you want the simplest path, separate business and personal storage, keep invoices, and document your usage approach. Treat storage and backups like any other business cost: claim what genuinely relates to business, be consistent, and maintain evidence. Done properly, these expenses can be a legitimate and sensible part of your business’s tax-deductible operating costs.