Time for a Business Credit Card? What You Need to Know About Business Expenses on Personal Cards

September, 29 2019

When you own a small business or start-up, it seems that everything you do is for two: you and the business. However, you can’t intertwine personal and business expenses in your bookkeeping.

One way to maintain the separation is to have two credit cards—one for personal and one for business. Some are reluctant to get a business credit card and others wonder if it’s a must. You are allowed to use a personal credit card for business expenses, but there are drawbacks. If you’re wondering which is right for you, keep reading.

Reasons to Use a Personal Card for Business

Personal cards:

  • Typically earn much better rewards than business cards. There are personal cards that offer 5% cashback on everything you buy with very few restrictions. Business cards often restrict which and how many purchases qualify.
  • Can offer large sign-up bonuses like cash back or rewards points.
  • Help you build and improve your personal credit history.
  • Offer consumer protections. You are protected under the CARD Act of 2009 with your personal card. For example, you must be given 45 days-notice before your interest rates are adjusted. The protections under the CARD Act do not extend to business cards.

Reasons to Have a Business Credit Card

On the other hand, there are good reasons to have a second card that’s a business credit card. Using a business credit card:

  • Protects your personal assets. If your business is an LLC or corporation, you are protecting your personal assets. Doing so avoids personal liability for your business debts. To maintain this separation, your personal and business funds, assets and credit files can’t mix. Placing your business charges on a card you use for personal purchases goes against the separation you want to maintain.
  • Makes bookkeeping easier: At tax time, are you prepared to untangle your personal and business expenses, line by line? If you’re using one card for both purchases, you run the risk of over- or under-reporting to the IRS. When that happens, you run the risk of financial penalties and legal scrutiny.
  • Builds business credit: Purchases on a business card helps build business credit, which is separate from your personal credit report. This score is important to lenders.
  • Enables your employees to use the card: You don’t want to give your employees access to your personal credit information. A business card account often allows for employee cards on the same account.
  • Have higher spending limits.

I recommend you have two cards. I also recommend that you are strict about keeping your spending separate. Don’t pay for office supplies on a personal card, and then forget that it’s a business expense. And don’t pay for a family dinner on a business card because of the rewards points you can earn.

If you’d like assistance keeping your business records organized, we can offer guidance and suggestions. Let us know how we can help!


Additional sources:
Can You Put Business Spending on a Personal Credit Card for Rewards?” by Johnny Jet
Why You Need To Stop Putting Business Expenses On Your Personal Credit Card” by Jared Hecht