If the company refuses to pay for the expense or if there’s confusion about it, the cardholder’s personal credit score could be impacted by late payments or negative payment history. If an owner or shareholder misuses the business expenses credit card to make personal purchases, it also makes it difficult for the business to separate personal finances from business finances, which could put the individual at risk for liability.Īlso, because credit limits for business credit cards can be much higher than personal credit cards, cardholders may be tempted to overspend for personal use. If a company tries to get a tax deduction for personal expenses, they can face an audit, fines, and even legal action. This can put the small business in a bad position, as it loses money meant to help it operate.īut misusing company money can also get the business in legal trouble. If they’re using a company credit card to pay for personal expenses, they’re taking money away from the business. Employees should be paid with a paycheck for their time, and use that money for their personal needs. Misallocation of expenses - or when an employee uses business credit cards or money to pay for personal expenses - can harm a small business in a number of ways.įirst of all, it’s basically the same as taking money from the business. Find My Top Options How Misallocation of Expenses Harm a Small Business Browse your top business credit card options and apply in minutes. It’s important to keep business credit card expenses strictly to business uses for a number of reasons that we explain below.īusiness credit cards can help you when your business needs access to cash right away. Personal expenses are any purchases that an individual makes that aren’t necessary to the company’s operations. Many companies issue business credit cards to their employees so that they can use the cards to pay for business expenses directly. You can generally get tax deductions for these expenses, and if you use personal cards or money to pay for them, your company should issue you a reimbursement. Mileage if you or your employees have to drive.The number one way to keep the corporate veil intact - or maintain separation - is by separating the business’s expenses from the personal expenses of the owners or shareholders.Ī business’s expenses are any purchases that pertain to the business’s operations and are “necessary and ordinary,” according to the IRS. This is a concept known as maintaining the corporate veil, and it protects individuals from personal liability if something goes wrong with their business. Personal Expenses?įor any business entity like a limited liability company (LLC) or corporation, it’s important to keep the company legally separate from its owners or shareholders. Find out seven credit card expenses you should never put on a business credit card and four you should in this article from Nav’s experts.It’s important to keep personal expenses separate from business expenses for legal and tax reasons.Using business credit cards can be one of many good financial decisions that small business owners make to pay for everyday purchases while opening up cash flow and earning rewards.
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