Do you put personal purchases on your business credit card?
Starting out, entrepreneurs usually have two choices: to use personal credit cards for business purposes, or to get a small business credit card. Whichever route you decide to go, one of the most important things you can do is to make sure you have a credit card that you use strictly for business purposes. That means you should not put any personal purchases on this card.
There are three good reasons for not doing so:
- It can make your life much simpler come tax time.
Your accountant will be able to easily identify your business purchases, and be able to make sure that you get the appropriate deductions.
- It may save you money at tax time.
If you use your card strictly for business purposes, you may be able to deduct the interest, annual fee, and other fees. This is much harder to do if you mix business and personal purchases on the same card.
- It can make it easier if you need to shut down.
If you must unwind your business, and heaven forbid consider bankruptcy, then having separated your purchases onto separate cards will make it easier to identify which ones were for business purposes and which ones weren’t.
Of course, you have a choice of whether to use a business or a personal credit card for the purchases you make for your business. While, technically, you aren’t supposed to use a personal credit card for your business, it’s not that hard to do. It’s not like your card issuer is looking over your shoulder and questioning whether that paper you purchased is really for your kid’s school supplies instead of for your business. (They earn their percentage in either case.)
The Credit Card Act Protects Consumers – Not Businesses
In the past, the decision between using a small business card and a personal one was pretty easy. But it’s become more complicated thanks to the Credit Card Act. That legislation, which was passed in 2009, gave consumers significant protections when it comes to their credit cards. It stopped the practices for example of raising interest rates on outstanding credit card balances at any time for any reason, and restricted penalty fees, among other things.
This law, however, specifically excludes business credit cards. So that means that a card issuer can still raise interest rates on business or corporate credit cards at any time, or set cutoff times for a payment to be received in the middle of the day, instead of by 5 PM as required by the CARD Act, for example. And those are just a couple of examples of the protections that don’t automatically come with business credit cards.
Fortunately, some card issuers have extended some of the protections the CARD Act offers to their small business cards. If this is important to you, then look for a card that offers these protections.
For more information on business credit cards and 29 Small Business financial resources visit www.corporatedirect.com/business-credit/.
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About the Authors
Garrett Sutton, Esq., author of Start Your own Corporation, Run Your Own Corporation, Loopholes of Real Estate, The ABC’s of Getting Out of Debt, Writing Winning Business Plans and Buying and Selling a Business in the Rich Dad Advisors series, is an attorney with over twenty-five years experience in assisting individuals and businesses to determine their appropriate corporate structure, limit their liability, protect their assets and advance their financial, personal and credit success goals.
Gerri Detweiler is the author of four books, including the Ultimate Credit Handbook (named one of the top five personal finance books of the year when it was released), and a media favorite quoted in publications like USA Today, The Wall Street Journal and featured on The Today Show and CNN. A credit educator since 1987, she’s served on credit reporting agency Experian’s Consumer Advisory Council twice.