It's or Its?

There is no shortage of writing rules governing grammar, punctuation, style, and usage—and their accompanying exceptions—and since I can’t possibly memorize them all, I often refer to The Gregg Reference Manual. It's an invaluable resource, and my Manual has sentimental value: It was the first tool of the trade I bought when I decided to become a freelance writer.

My goal is to help you become a better writer, so I’ll blog about questions I’m asked, questions I ask, and mistakes I see. One of the most common mistakes is the misuse of it’s and its.

It's
 
It’s is a contraction. A contraction occurs when two words are shortened to one word, with an apostrophe inserted where the first word ends. Therefore, it's is short for it is or it has

It’s not too late to go back to school. (It is not too late to go back to school.)

The store owner said it’s closing time. (The store owner said it is closing time.)  

It's been awhile since we've talked. (It has been awhile since we've talked.) 

Its

Its simply shows possession (i.e. ownership). 

The university had its budget slashed by 12%. 

The city received a AAA rating on its municipal bonds.

Test

Not sure which to use? Insert it is or it has. If the sentence makes sense, use it’s. If not, its