Credit Card Expert Roundup #45 - Do you think that's it's important to only use business credit cards for business expenses, and consumer cards for personal expenses, or does it really not matter?
To prevent creating an accounting nightmare, it's very important to not use the same credit card for your business and personal expenses. However, if you keep the two separate, does it really matter if you use a card marketed/designed as a business card for business, and a personal for personal purchases? Jason Steele asks the experts:
Do you think that's it's important to only use business credit cards for business expenses, and consumer cards for personal expenses, or does it really not matter?
Eric Rosenberg - Personal finance and technology writer based in Ventura
As a business owner, it is important to keep your business finances separated from your personal finances. A business credit card is a great way to do that. However, you don't always have to use a business card for business use or a personal credit card for personal use. There is no rule say which kind of card you use for which purchase.
The most important issue when mixing personal and business credit cards is keeping close track of what expenses are truly related to your business for tax and bookkeeping purposes. If you run your business as an LLC and want to keep the legal protections in place, you'll need to take extra care to avoid piercing the "corporate veil." But as far as the credit card issuer is concerned, a purchase is a purchase. Keep that in mind when working to maximize your miles, points, or cashback rewards.
Gerri Detweiler - Education Director for Nav, which helps business owners build and monitor strong business credit for free, and matches them to financing.
Many small business owners rely on personal credit cards in their business. A Nav survey found that business owners have twice as many credit cards on their personal credit reports as those who don’t own a business.
Using a business credit card exclusively for business expenses can be smart for several reasons:
It will be easier to file your taxes, and identify purchases made for business purposes. You may be able to deduct interest and fees on your business credit cards.
You will have a clearer picture of business spending, cash flow and your business financial health.
Most business credit cards help build business credit.
You may be able to protect your personal credit from the activities of your business, as many small business credit cards don’t report account activity to the other’s personal credit if payments are made on time.
Rewards on business credit cards can be quite lucrative.
That said, if you apply for a small business credit card, the issuer will check your personal credit and a personal guarantee will be required. Many issuers reserve the right to raise your interest rate if you are late with a payment (even by a day) and that default rate is often quite high. My advice is to set up automatic payments and alerts, and try not to charge more than you can afford.
Andy Shuman - Author at the Lazy Traveler's Handbook
Let’s be clear – while business credit card issuers expressly warn you against putting your personal expenses on a business card, you are not prohibited by law from doing so. The same applies to putting your business expenses on your consumer card. You won’t get blinded by flashing lights; no one will cuff you and read you your rights. In most cases, business credit card issuers won’t close your card (although they absolutely can because you would be in violation of the credit card agreement).
However, there are 3 reasons why you may still not want to put your personal purchases on a business credit card.
Business credit cards don’t provide the same level of protection
Consumer credit cards are regulated by consumer laws. The Credit CARD Act is even dubbed the Credit Cardholders’ Bill of Rights and for a good reason. It protects consumers against unfair credit practices. Credit card issuers can’t, for example, hike your APR without a warning or charge an over-limit fee after quietly allowing you to go over the limit.
The Fair Credit Billing Act is another important consumer law. It states that in case of unauthorized transactions (when your credit card is stolen or skimmed), a consumer is only liable up to $50 (although you must report within 2 days).
To be fair, some business cards match at least some of their protection benefits to consumer benefits voluntarily, but they don’t have to and most of them don’t extend ALL protections.
You get business credit cards precisely to separate business expenses from personal expenses
Then why would you want to complicate both of your worlds? Most of your business-related expenses might be tax-deductible, so why mix your business record with personal purchases?
You form a corporation or LLC to build a wall between your business and yourself
If your company gets sued and your small business card is peppered with personal purchases – good luck trying to prove that you shouldn’t be held personally liable. The fact you have commingled business and personal expenses might be a good enough reason for a judge to “pierce a corporate veil.”
Conclusion: just don’t. It isn’t worth the risk.
Lindsay VanSomeren - Freelance writer living in Kirkland, Washington
When I first started freelance writing, I used the same credit card for all business and personal purchases and that worked fine until I started my LLC. I have a slightly unusual business arrangement, and so I needed a lawyer to draft up my articles of incorporation. He advised me to keep my business and personal expenses totally separate, so as not to “pierce the corporate veil” and make my personal assets more vulnerable to a lawsuit in the unfortunate event I ever get sued.
I generally try and follow his advice by keeping separate business and personal cards, although in reality I’ve occasionally made a mistake such as making a business Amazon purchase with my personal card when I wasn’t paying attention. I do aim to keep business and personal expenses on separate credit cards, however. I don’t ever plan on being sued, but if I ever am, at least I can say I followed my lawyer’s advice.
Bill Hardekopf - CEO of LowCards.com
There are a number of reasons to use a business credit card, and not a personal credit card, for your business expenses. First, you want to separate your business and personal expenses. You will likely be able to write-off business expenses on your taxes, and it will be easier for you to identify these deductible expenses if you use a business credit card for your company transactions. You may also be able to deduct any credit card interest for purchases made for your business, so if these purchases are made on a business credit card, it will be much easier to identify the interest expenses. A legal reason to use a business credit card for your company: if there is no clear distinction between your business and personal assets, your personal assets could be at risk if your company is sued or goes bankrupt.
It's also wise to open and use a business credit card because it is a solid way for your firm to build its credit history. This could help if your company ever has to apply for any loans in the future. Finally, you may need to eventually give some trusted employees the ability to put their expenses or make purchases with the company credit card. You would never do that with a personal credit card since it could harm your personal finances and credit score if not used correctly. A business credit card will also give you another way to monitor employee spending.