Small business owners frequently rely on credit cards for convenience purposes – earning rewards, tracking expenses and providing employees with benefits like travel and rental car coverage. Though it may not be illegal to charge personal items on your business credit card, doing so could violate its cardholder agreement and lead to complications at tax time or during bookkeeping processes.
It’s Not Illegal
Though technically legal, using your business credit card for personal expenses should not become a regular practice for various reasons.
One danger of failing to distinguish personal from business expenses could lead to legal ramifications in the future. Corporations and LLCs offer protections from lawsuits; if there is no clear separation of spending between personal and business spending, those legal protections could erode. Secondly, this may make tax time much harder, making it harder for you to properly identify business versus personal expenses and costs as separate items; finally it may even have adverse repercussions for your credit score.
Personal expenses charged on a business credit card could violate the terms of your contract with its issuer. Should this occur, they will likely notify you and take appropriate measures such as placing a hold or suspending your cards – something which might not matter as much if only a single employee uses the card but could become problematic as it expands.
If you use your business credit card for personal expenses and incur debt, as the owner of that card you must take responsibility to repay that debt – this practice is known as embezzlement and may lead to devastating repercussions for both yourself and your company.
Use of your business credit card for personal expenses can also harm its credibility with vendors and suppliers, who may become less inclined to do business with you in the future if they notice you aren’t meeting payments on time. Furthermore, doing this prevents you from building a good business credit history which is vital in order to obtain loans like mortgage or car loans later on as well as attract investors or partnerships that would partner with your venture – and ultimately help ensure its survival!
It’s Not a Good Idea
Blending personal and business expenses is never recommended as this creates additional complications at tax time and could even land you in hot water with authorities. Business credit cards provide many perks that are more desirable to small business owners than personal cards, including complimentary lounge access and primary rental car coverage. These cards typically offer higher spending limits and require either a personal guarantee or FICO score to qualify. This means that if you make significant personal purchases using a business credit card, its issuer is likely to contact your FICO score in order to assess whether you can pay back. If that proves impossible, then your company may have to declare bankruptcy or take other steps in order to reclaim its funds.
Even though using a business credit card for personal expenses is technically legal, most card issuers would consider such use misuse and would shut down your account as soon as it becomes apparent that personal credit cards provide greater consumer protections such as the CARD Act’s requirement that advance notice be given prior to raising interest rates or adding fees.
Priyanka Prakash, lending and credit expert from Fundera explains that if you use your business credit card for personal expenditure and the corporation files for bankruptcy, your personal assets may be put at risk as court may order to pierce through its corporate veil and hold you personally liable for its debts.
Keep in mind that business credit cards report to different credit bureaus than personal cards do and will not help build your personal credit score if you pay on time. While this might not matter much if using it exclusively for your business expenses, if used occasionally for personal purchases it could cause problems. There are plenty of excellent high-limit consumer cards which allow for unlimited spending without reporting to business credit bureaus.
It’s a Violation of the Agreement
Use of a business credit card for personal expenses is illegal but still against the terms of agreement, making it harder to distinguish between personal and professional spending. Furthermore, using your company card for personal purchases increases the chance of legal issues occurring; and is likely to result in missed tax deductions and mismanaged finances for your small business. For best results when working as a small business owner it’s essential that personal and professional expenditures remain separate; using your company credit card for personal purchases could put it at risk of legal action against itself; therefore it’s vital that personal and business expenses stay distinct!
By misusing your business credit card for personal purchases, you may be breaching the agreement that was signed when opening it. Credit card companies take this matter seriously and may flag an account if personal expenditures become prevalent – potentially leading to termination and serious financial repercussions for both you and your company.
Avoid placing personal expenses on your business credit card and look into alternative means of payment such as writing checks or setting aside money through direct deposit for these expenses instead. Doing this will give you greater control of both spending habits.
For freelancers, entrepreneurs and small business owners it’s essential to distinguish between personal and business expenses. Although technically illegal to use your company credit card for personal expenses it can create serious long-term problems including lost tax deductions, difficulty distinguishing personal from professional spending and potential liability protection losses provided by having an LLC or corporation. Furthermore, using it for personal spending could impact its credit rating since this appears as mixing personal funds with company funds.
It Could Lead to Problems
Use of a business credit card for personal expenses can be risky on multiple fronts. First and foremost, doing so violates company policy and may result in punishment, even dismissal; financial issues become further compounded as it becomes difficult to differentiate between personal and business spending – creating difficulties come tax time.
Another problem lies with violating your card issuer’s agreement, since most business cards contain clauses in their applications that specify only using it for business expenses. An occasional personal expense won’t raise eyebrows, but using it regularly to cover personal costs could set off alarm bells – and late payments or serious delinquency issues on a card could compromise its future availability and cause irreparable harm to your credit rating and the possibility of new card issues later.
There are also other advantages of keeping business and personal expenses separate: most business credit cards offer higher spending limits than consumer cards and may provide extra perks such as primary rental car insurance or airline perks that make them especially appealing. It would be difficult, otherwise, for you to justify these additional perks when applying for additional cards if they were mixed together with personal spending.
At times it may be challenging to differentiate what constitutes legitimate business expenses from personal ones, which could create major headaches when applying for loans or filing taxes later. Cash and check balances are much simpler to track compared with managing multiple cards which may get mixed up and cause confusion.
If you’re considering using your business credit card for personal expenses, reconsider. Without clearly distinguishing which expenses are personal versus legitimate business expenditures, it may be preferable to use a personal card instead. Consumer options exist with greater credit limits or rewards & travel benefits, ensuring there are cards tailored specifically to you and your family needs. Selecting the ideal card requires understanding your goals, how much spending is manageable within budget and avoiding debt as best you can.
