Why Business Expenses Should Never Be on a Personal Credit Card

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• Business expenses should always be on a separate, business-only credit card for a variety of reasons, and personal expenses should never be on that card.
• Keeping things separate helps with taxes and legal issues — and there are plenty of business credit cards with generous reward programs.
• Compare the best small business credit cards.

If you own a small business, you are faced with countless decisions every day. One that comes up regularly is how to pay for business purchases. When it comes to buying items for yourself, putting the purchase on a business credit card is a big no. 

It makes taxes more complicated

When tax season rolls around every year, it is important to have updated financial records from your business. This helps you complete the legally required tax return for your business, whether it is a Schedule C on your personal tax return or gets a business tax return of its own.

While you have to report every dollar your business brings in, you can also deduct nearly every dollar you spend on your business. Putting business purchases on a business credit card makes tracking these expenses much easier. But if you clutter up your account statement with personal purchases, tallying up deductions is a lot more work.

It can pierce the corporate veil

Limited Liability Corporations (LLCs), S-Corporations, and C-Corporations are popular ways to structure a business to protect yourself from personal liability in the event of a business lawsuit. Your business won’t protect you if you don’t follow certain rules, however, and one of those rules is keeping business and personal finances separate.

If an occasional purchase is made between the two, it isn’t a huge deal as long as you track it, keep your receipts, and make the correct reimbursements as necessary. When those lines get blurred, you may lose your corporate legal protection.

It makes it hard to understand your profits

While the two reasons above are each enough of a reason to keep your finances separate, this final reason may be the most important of all: As a business owner, you need good information on your business finances to make good business decisions.

Large companies have full-time financial planning and analysis professionals with accounting and finance degrees. I used to work in this field, and I was charged with things like keeping accounting records accurate and updated. I spent hours looking for business trends to cut expenses or improve revenue. I focused completely on finances and financial results.

Small business owners don’t have FP&A teams, however. You have to do all of that yourself. Thankfully, accounting apps like Quickbooks, Xero, and Wave Accounting include reports that give you much of this information with just a few clicks. But it only works when you have accurate financial records in your accounting app.

If you keep your personal finances out of your business, you can link your business bank and credit card accounts to automatically import transactions. Then it just takes a little work by you or a bookkeeper to categorize them and you have all of the reporting you need.

How to keep your personal and business finances completely separate

Keeping your personal and business finances separate is easy. It does take a little work at the start to get things set up correctly, but once they are it is simple to keep a hard line between personal and business accounts. Business credit cards offer their own rewards programs, and you can use them in conjunction with your personal cards.

I use the Ink Business Cash® Credit Card from Chase myself, which is great because I can combine rewards with my personal Chase Ultimate Rewards® account. 

If you are a fan of premium travel, check out The Business Platinum Card® from American Express. The Amex Business Platinum Card has a $695 annual fee, but you can earn up to 150,000 Membership Rewards® points after you spend $20,000 in eligible purchases on the card within the first three months of card membership.

While it may seem easier to dump business receipts in a shoe box and let your accountant deal with them every spring, updating your financial records at least monthly gives you the freshest information to run your business. It helps protect your corporate veil and makes tax time a breeze. There are many reasons to keep your business finances walled off from your personal money — but the only reason to mix your money is being too lazy to set things up properly.