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One reason a lot of people confuse "its" and "it's" is that many words form the possessive by adding an apostrophe, such as "John's hat" "my sister's house," "the clerk's shirt," etc.

So rather than read "it's" as a contraction, they see it as a possessive, even though other possessive pronouns don't have an apostrophe, either.

My favorite variation on the "its/it's" dilemma is "its'." Since "it" is never plural, I have no idea where that one comes from.

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