Is It Illegal to Use a Business Credit Card for Personal Use?

While it’s not illegal to use a business credit card to cover personal expenses, this can cause confusion when it comes to tracking your business-related expenses. Business credit cards are best used to help separate your business and personal finances and maximize rewards for your company’s purchases.

However, there are some advantages to using business credit cards for personal use as long as you have a system to flag personal-related purchases. For example, small business credit cards typically offer rewards in business-related spending categories like office supplies, larger credit limits, and more lucrative sign-up bonuses.

Consequences of Using a Business Card for Personal Use

Business credit cards typically offer more robust perks and benefits than personal cards, making it tempting to use them for personal expenses. Using a business credit card for personal use may complicate your business finances for several reasons.

1. Tax Season May Become More Difficult

Using business credit cards for personal use can complicate your business accounting and make for a difficult tax season because most business expenses are tax-deductible. However, it’s illegal to claim business tax deductions for personal expenses, and if you accidentally do this, you can end up with large fines from the IRS. It should be in your best interest to separate those two finances to avoid this consequence.

2. Potential Negative Impact on Your Personal Credit

While using a business credit card for personal expenses won’t directly impact your credit, charging too many expenses to a single card can increase your credit usage or your credit utilization ratio. High credit utilization ratios indicate you’re using a lot of your available credit and can damage your personal credit score. As a rule of thumb, aim to maintain a credit utilization ratio below 30%, but greater than 0% to help your credit.

3. It Will Be Harder to Track Business Expenses

Commingling business and personal expenses makes it more difficult to keep track of your business’s overall financial health and performance. It can complicate your financial reports and make it a challenge to spot areas where your business can cut costs. You may even find it difficult to recognize if your business is becoming profitable or if it’s losing money.

4. You’ll Have Less Credit to Use for Business

Small businesses need easy access to credit to help with potential cash-flow gaps and making business-related purchases. When you use your business credit card for personal expenses, you use credit that’s intended to help with your business’s day-to-day expenses. Less available credit can hurt your business finances.

5. Your Issuer Could Close Your Account

Before you use a business credit card for personal use, learn how a business credit card works to avoid using them incorrectly. Some business credit card issuers require you to sign an agreement restricting you from using your business card for personal expenses. If you break this agreement, and issuers notice unusual credit usage patterns, you run the risk of your provider closing your account.

What to Do If You Used Your Business Card for Personal Use

If you unintentionally use your business card for personal expenses, flag the transaction so that it’s not included in your business’s bookkeeping. Make sure to pay off the expense as soon as possible so it doesn’t impact the available credit the business may need. You should also add a journal entry to your accounting software to record the expense and its reimbursement. If you’re not the business owner, report the mistake to necessary business parties.

Tips for Separating Business and Personal Finances

Using both business and personal credit cards is the easiest and best way to separate business and personal expenses. You can also open a small business checking account to accomplish the same goal with your deposit accounts.

Three tips for separating your business and personal expenses are:

1. Apply for a business and personal credit card: Applying for both business and personal credit cards will make it easier for you to keep your business and personal expenses separate. Using each card appropriately will help you organize your finances effectively.
2. Get a business checking account: Having a separate checking account intended solely for business use will help you manage your business funds more easily.
3. Open a business savings account: Open a separate business savings account to avoid mixing your personal savings with your business funds. A business savings account allows you to save for future business expenses and emergencies.

Keeping your finances organized is essential to a successful business. To separate business and personal finances, it’s vital to set up separate bank and credit accounts and use them appropriately.

Frequently Asked Questions (FAQs) About Business Cards for Personal Use

We covered a lot of different pieces of information about the impact of using a business credit card for personal use. Some questions are asked more often than others, and we address those here. If you have any additional questions, comment below, and we’ll provide an answer.

1. Can my business pay for personal expenses?

Even if you are the sole owner of the business, it’s not a good idea to use business funds to pay for personal expenses. Commingling your business and personal finances can make it difficult to track your business’s performance and complicate tax season. It should be in your best interest to use a personal credit card to pay for personal expenses.

2. What’s the difference between a business and a personal credit card?

Both business and personal credit cards offer short-term financing. However, business credit cards are designed for making business-related purchases and building business credit. Personal credit cards only build personal credit and typically offer rewards in consumer-oriented spending categories, including groceries and United States streaming services. If you don’t qualify for a business credit card or simply don’t want one, apply for a personal credit card.

3. Does a business credit card build personal credit?

Some business credit card issuers report to the consumer credit bureaus, which means you can use a business credit card to build personal credit. However, that’s not always the case. Some issuers don’t report to the consumer credit bureaus, helping you protect your personal credit when using a business credit card.

Bottom Line

Although it’s not illegal to use a business credit card for personal-related purchases, business credit cards are best used for business-related expenses Using a business credit card for personal use can lead to conflicts with your business’s record-keeping, taxes, credit, and overall financial health. It’s always a good idea to separate your business and personal finances as best as you can.