There’s no rule prohibiting the use of a personal card for business expenses, and many small business owners may choose to do so. That said, this can make things more complicated when it comes to issues like record-keeping, paying taxes and liability protections. Here’s what to consider when it comes to using your personal credit card for business spending.
Why you might consider using a personal credit card for business expenses
In most cases, getting a separate business card and not commingling your personal and business spending is smart. However, there are a few scenarios where it might make sense to just stick with a personal card for purchases.
For example, if you have a sporadic or infrequent side hustle that earns you just a little extra money, it may not be worth it to add an additional credit card to your wallet for a minor amount of spending on your part.
Another reason to use your personal card is that personal credit cards often have greater consumer protections than business cards, thanks to the CARD Act of 2009 and the Fair Credit Billing Act (FCBA). These legislations include limiting your liability to at least $50 in case of fraud, a 45-day notice before raising interest rates, and limits on late fees and other types of fees. Although a bank issuing a business credit card may voluntarily adopt similar practices, it’s not a requirement. It pays to read the fine print on any small business card you’re considering.
Risks and drawbacks of using a personal credit card for business expenses
There are plenty of good reasons to separate your personal and business expenditures and to get a separate business credit card. Here are some of the potential drawbacks of using your personal card for business spending:
- It complicates accounting. If you use your personal credit card for all of your business spending as well as your own personal expenses, it may not be clear which expense was for work and which wasn’t. For example, if you bought printer ink for your home computer and printer paper for work and they’re on one receipt, that can be confusing when it comes tax time.
- Can expose you to potential legal problems. If you’re a very small business or solo entrepreneur and use your personal card for your business it means you could be held personally liable should your business be subject to a lawsuit or incur debts you can’t repay. This is one of the benefits of forming a limited liability corporation (LLC) or similar business structure–to keep you shielded from liability related to your business so that your personal assets aren’t at risk.
- Can affect your personal credit utilization. If you’re making a lot of big purchases for work on your personal card, it can have a negative impact on your credit utilization ratio and in turn your credit score. Unlike a personal card, business cards don’t always have the same direct impact on your credit utilization as they may not report to the consumer credit bureaus unless you have negative activity.
- Inability to build business credit. If you’re looking to scale your business to eventually have multiple employees, using your personal credit card won’t help you build business credit, and having strong business credit can help you grow and get business loans for capital improvement and other necessary expenses.
- Miss out on rewards and valuable credits. Many business cards earn rewards on areas of typical business spending, like office supply stores, shipping or advertising expenses. Personal credit cards generally don’t earn rewards in those categories.
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What to do if you’ve already used a personal credit card for business expenses
If you’ve already been using your personal credit card for business expenses or you accidentally used your personal card for a business expense here’s what to do.
In order to sort out your record-keeping and simplify things at tax time, make sure to note the expense in detail in your bookkeeping software. Using a personal card for business expenses could be a red flag to tax authorities and if you are audited or asked to provide in-depth expense details, being organized upfront can save you a lot of hassle later.
You can reimburse yourself with a check from your business account for the expense. If you have a receipt of the expense, make sure to keep it and make as much notation about what the expense was for as possible.
It’s best moving forward not to mix personal and business spending. You don’t need to have an LLC or other business entity to get a business credit card; you can apply for one using your Social Security number. If you’re making multiple purchases for your business using your personal card, it may be easier in the long run to apply for a separate business card, Some of the best credit cards for business expenses offer features that can be helpful for a small business like 0% intro APR offers on purchases, rewards, and liability protections similar to what you might find with personal credit cards.
The bottom line
Although you can use a personal card for business expenses, in most cases it’s best not to. Using your personal card for business spending can make your finances complicated and could open you to personal liability if your business fails or is sued. Additionally, it can make paying your taxes challenging to sort out as well as inhibit you from building business credit. The reasons not to use a personal card for business spending generally outweigh any reasons you might have for doing so.
Frequently asked questions
Is it illegal to use a personal credit card for business?
No, it is not illegal to use a personal credit card for business. However, just because you can doesn’t mean you should. Commingling your personal and business expenses can lead to potential issues with liability protections and taxes. It’s always best to keep your personal spending and your business spending separate.
Can I deduct business expenses charged to a personal card?
You can only deduct qualified expenses charged to a personal card. The Internal Revenue Service (IRS) has several documents and guides that describe what can be considered an eligible business expense deduction that you paid for with a personal account. It’s best to consult with a qualified tax professional to help you determine the best course of action when filing your taxes if you’re looking to deduct any business expenses you charged to your personal card.
How do I record business expenses charged with a personal card?
The right way to record business expenses charged with a personal card will depend on your bookkeeping software, but ultimately the more details and documentation you can provide about the expense, the better. If you aren’t sure how to record the expense, contact the help desk of your bookkeeping software and/or a qualified tax professional.
