Is it illegal to use a business credit card for personal expenses?


Business credit cards are great tools for dealing with business expense, which is a constant chore. There are always consumables to buy, suppliers to pay for, and operating costs to be managed. Not to mention, as a business owner, you still have personal commitments to take care of. Sometimes, in the hustle and bustle of taking care of things, the boundaries between business and private life become blurred. So what happens when you use your business credit card to make personal purchases?

Technically speaking, putting your personal purchases on your business credit card is not illegal. However, personal purchases with a business credit card are likely to violate the terms of your card contract, which can have serious consequences. Basically, it’s best to keep personal and business expenses separate.

Consequences of using your business card for personal expenses

Applying for and approving a business credit card can often be easier than getting a consumer credit card. Even if your business is not yet fully up and running, you can still be approved for a business credit card. This can make it tempting to use a business credit card for all of your expenses. However, it is very important Use a business credit card only for business expenses. Mixing business expenses with personal expenses complicates your expenses on multiple levels. In addition to causing you an accounting headache, you are also taking away funds that should help your business succeed. Not to mention it has ramifications for your account and possibly your future creditworthiness.

Your account may be closed

If you are approved for a business credit card, you agree to the terms and conditions that accompany the use of your account. According to Mike Pearson, founder of Credit deduction, “Most business credit card issuers require you to sign an agreement that you agree not to use your business card for personal expenses. And if you breach the terms of your agreement, you have the option to cancel your card. “

If your card issuer sees patterns in your spending that are outside of your normal business spending, it can trigger an alert. If you use your business credit card for personal expenses, you are violating the terms and conditions for the card, which will cause your account to be closed.

You can be personally liable

If you mix your personal and business finances, you can end up personally liable for any business debt if your company struggles with legal issues. Credit industry analyst Greg Mahnken says, “Mixing your personal and business funds is a risk as courts can break the corporate veil and hold you personally liable for your company’s debts.”

Most credit card issuers require you to sign a personal guarantee before approving a business credit card. Mahnken says that because of this guarantee, “You are almost certainly legally liable for the balance on your business credit card. It is simply not worth exposing yourself to this liability.

Purchases have limited consumer protection

If you use a business credit card, you may lose the protection on certain purchases that you would have had if you had used a personal credit card. This is because business credit cards are not subject to the same safeguards as consumer credit cards. Many of the CARD promotion Protective measures do not apply to business credit cards. These protective measures include:

  • Prevention of interest rate hikes without notice
  • Prohibition of interest rate increases on existing balances
  • Ban on paying interest on debts paid on time
  • Apply the payment to the highest interest rates first

Congress has passed a bill providing this protection for business credit cards, but nothing has happened yet.

Another concern about buying with a business credit card is that you will have less time and difficulty to dispute fees. You also have less protection against the way collection agencies handle collections.

Both your personal and business creditworthiness is affected

You might be tempted to use your business credit card for personal purchases to build your personal credit score. While this might seem like a good idea on the surface, it probably won’t produce the result you want. This is because most business credit cards only report business credit bureaus. The profits made on your business credit card score are unlikely to carry over to your personal credit score. However, if you have personal expenses on your business credit card and are unable to pay them off, your personal creditworthiness may be damaged. This is due to the personal guarantee that you sign before receiving your business credit card. Mahnken says: “If you cannot pay your balance, your personal creditworthiness is likely to suffer.”

You pay more in the long run

Business credit cards usually have higher fees and higher interest rates. The tradeoff for these higher rates is that most of your business expenses and interest are tax deductible. However, personal purchases are not tax deductible, so you will not receive any return on those purchases. When you make personal purchases with your business credit card, those purchases become more expensive in the long run. Not to mention, when you use business loans for personal purposes, you are draining valuable funds from your business.

It’s getting harder to keep track of business expenses

Tracking your business spend will help you understand where your business is growing and where your business is losing money. It also gives you an overview of your main expenses and where you can save costs.

When you pollute the water with personal expenses, it becomes more difficult to understand your business’s needs and overall financial health. And according to the tax advisor Michael Eckstein“Even if you try to filter them out, your personal expenses can skew your financial reports and make it very difficult to see how well (or badly) your business is doing.”

Reliable bookkeeping is also very important when applying for working capital, be it a loan, a grant or a business loan. If your personal finances are mixed up with your business finances, you will likely have trouble getting funding, and it may not be until you have cleaned up your accounts.

Your taxes are getting more complicated

Most business expenses are tax deductible; personal expenses not. The mix of the two makes filing your taxes complicated and can cause even deeper problems if the IRS ever decides to investigate you.

For example, let’s say you’re on a business trip that includes a family vacation. During this time you will have several dinners which you will debit from your business credit card. Some of these dinners are with customers and others with family. When the time comes to keep a record of your expenses, it can be difficult to tell the dinners apart. Your credit card company may not be able to spot these errors, but the IRS is a little more meticulous. In the event that your expenses are audited after filing, you can stop paying fines or even back taxes.

What if you accidentally use a business credit card for personal expenses?

Accidents happen. It is not an unlikely scenario that you will accidentally use your business credit card to pay for personal expenses. If so, you can repair the damage. First of all, make sure you flag the personal purchase so it doesn’t appear in the accounting for your business. Next, make sure you pay off personal expenses as soon as possible so they don’t affect your available credit for your business. Unless you are the sole owner of the business, you also need to think about how to report the bug to the required parties in the business.


About Gloria Skelton

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