It's and Its.

These two cause all sorts of problems and it is well worth the two minutes it takes to understand the difference between the two.
It's is the contracted form of 'it has' or 'it is' and is used in the following ways:
Its is the possessive form of it, meaning 'of it'. This is possibly why the difference between it's and its causes so many problems. Its, without an apostrophe, is a possessive form, where an apostrophe is usually required. It is similar to words like his and hers, neither of which needs an apostrophe.
Test your understanding of it's and its with this exercise.

Its vs. it's: avoiding dorky grammar mistakes

Its/it’s has two forms. One form has an apostrophe, spelled I-T-apostrophe-S, and is a contraction of it is or it has.
Here’s an example where it’s means it is: “Hooray! It’s time for grammar!”
This means “Hooray, it is time for grammar.”
Here’s an example where it’s means it has: “Wow! It’s been a long time.”
This means, “Wow! It has been a long time.”
I can combine these two examples like this:
“Wow, it’s been a long time since I heard a student say, ‘Hooray, it’s time for grammar!’ ”
That means, “Wow, it has been a long time since I heard a student say, ‘Hooray! It is time for grammar!’ ”
The other form of its has no apostrophe, it’s spelled I-T-S, and is the possessive form of the pronoun it, which you can use when you’re talking about something of or belonging to an “it.”
Here are some examples:
1) Sweden is famous for its social welfare system and hot blonde chicks.
2) Volvo is famous for its boxy-but-safe car design.
Neither of those sentences would make sense if you replaced its with it is or it has.
Luckily, when you are speaking nobody can hear whether or not your brain is putting in apostrophes where they don’t belong. Writing is where you will get in trouble.
Here is how you can avoid writing the wrong form of its/it’s when you have an important piece of writing where you cannot possibly afford to look like a dork.
1) So here’s step one. When you write, ask yourself if the it’s/its you’re about to write means it is or it has. If it does, then you can use the it’s form WITH an apostrophe. If it doesn’t make sense, then you need the its form WITHOUT an apostrophe.
Here’s an example:
Sweden is famous for its social welfare. Can you say, “Sweden is famous for it is social welfare” or “Sweden is famous for it has social welfare”? Nope, it doesn’t work, so you know you need its with NO apostrophe.
If you are still confused, then try replacing the its/it’s with another pronoun: his, her, or their. If one of those make sense grammar-wise, then you need its with NO apostrophe. Here’s an example:

Volvo is famous for its boxy-but-safe design. You can try “Volvo is famous for their boxy-but-safe design.” Yes, it makes sense! So you know that you use its with no apostrophe.
2) The second thing you should do is use the find feature of your word processing software to search for all instances of its (no apostrophe) and it’s (with apostrophe). For each instance you find, perform the it is / it has test or the his-her-their pronoun test. If you take the time to do this, you will never risk turning in a piece of writing containing this dorky grammar mistake.

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Good luck! It’s been a lot of fun making this first grammar podcast for you. I hope you’ll find it useful for avoiding the dorky its/it’s mistake.

Before I sign off, just a little update on the two favors I asked of you in the last episode. Thanks to all who have recommended your favorite English books — I really appreciate your input! If you still haven’t made a recommendation, it’s not too late. I’ll be collecting suggestions for another week or so, and then summarize them on the website.
I had also asked you how you would feel about mild swearing in these podcasts. So far only one person has told me that it wouldn’t be a good idea. To make it easier for you to have your say, I’ve put a poll up in the sidebar of the website at Better At English dot com. If you have any positive or negative feelings about mild profanity or swear words in these podcasts, please take the time to let me know.
Finally, I have some really cool news. Recently I started guest podcasting with Ben over at Very Vocabulary dot com. It’s a 20-minute weekly vocabulary podcast that teaches a handful of advanced vocabulary words each week. It’s aimed mainly at native speakers, but would be good for upper-intermediate to advanced learners of English as well. I hope you’ll head over to Very Vocabulary dot com and check it out! Our first joint episode should be up in the next few days.
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That’s it for this time. We’ll see you next time here at Better at English dot com. Bye for now!