Using a Personal Credit Card for Business
Probably since the dawn of widespread use of credit cards many people have made use of the personal credit facility available on the card to finance the user's starting up a business or to prop it up in more difficult times.
The reason is pretty obvious, business loans can be difficult to obtain, especially in the present financial situation. On the other hand, the piece of plastic in your wallet already has available cash ready for your personal use.
So the solution seems obvious simply divert some of that available personal credit to your business to either get it rolling or to help you through a difficult month. This seems like an obvious and easy way to resolve any business cash flow problems, which of course it is. However, it is also not without its pitfalls and potential dangers.
If you have a dedicated business credit card, all of the interest that is charged can be deducted from your annual business tax bill. If you use a personal card which you have previously used for personal purchases it is highly unlikely that the taxman will allow you to make any business deductions for business purchases on that card.
Depending on your circumstances and the mood of the taxman, he may permit you to make those deductions that appear on your personal card. You then have the problem of being sure that you have correctly entered all the business purchases with the matching receipts. If you have not you will lose some of your tax deductions, if you request a refund for something that was in fact a personal purchase you could end up in the taxman's sights for fraudulent claims.
If you're clever credit card bailout scheme fails and you are forced to make your business bankrupt your personal credit card debts will not be included. You will still be responsible for all the debts that are found on your personal credit card including the interest.
If you really must use a personal credit card for business purchases, the best way to go about it is with a brand-new un-used credit card. If that is not practical, the next best option is to completely clear the debt on the card and start with a clean sheet so that all transactions after a certain date our business transactions.
The least attractive way to use a personal credit card for business use is continue to use it for mixed business and personal purchases, at the very least if you use your personal card for business then you should stop every single personal purchase with the card and only uses for business. |
