3 reasons you should never put personal purchases on a business credit card

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Every entrepreneur should have a business-only credit card for business expenses.

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Every entrepreneur should have a business-only credit card for business expenses.
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10’000 Hours/Getty Images

If you own a small business, you are faced with countless decisions every day. One that comes up regularly is how to pay for business purchases. When it comes to buying items for yourself, putting the purchase on a business credit card is a big no.

It makes taxes more complicated

When tax season rolls around every year, it is important to have updated financial records from your business. This helps you complete the legally required tax return for your business, whether it is a Schedule C on your personal tax return or gets a business tax return of its own.

While you have to report every dollar your business brings in, you can also deduct nearly every dollar you spend on your business. Putting business purchases on a business credit card makes tracking these expenses much easier. But if you clutter up your account statement with personal purchases, tallying up deductions is a lot more work.

It can pierce the corporate veil

Limited Liability Corporations (LLCs), S-Corporations, and C-Corporations are popular ways to structure a business to protect yourself from personal liability in the event of a business lawsuit. Your business won’t protect you if you don’t follow certain rules, however, and one of those rules is keeping business and personal finances separate.

If an occasional purchase is made between the two, it isn’t a huge deal as long as you track it, keep your receipts, and make the correct reimbursements as necessary. When those lines get blurred, you may lose your corporate legal protection.

It makes it hard to understand your profits

While the two reasons above are each enough of a reason to keep your finances separate, this final reason may be the most important of all: As a business owner, you need good information on your business finances to make good business decisions.

Large companies have full-time financial planning and analysis professionals with accounting and finance degrees. I used to work in this field, and I was charged with things like keeping accounting records accurate and updated. I spent hours looking for business trends to cut expenses or improve revenue. I focused completely on finances and financial results.

Small business owners don’t have FP&A teams, however. You have to do all of that yourself. Thankfully, accounting apps like Quickbooks, Xero, and Wave Accounting include reports that give you much of this information with just a few clicks. But it only works when you have accurate financial records in your accounting app.

If you keep your personal finances out of your business, you can link your business bank and credit card accounts to automatically import transactions. Then it just takes a little work by you or a bookkeeper to categorize them and you have all of the reporting you need.

How to keep your personal and business finances completely separate

Keeping your personal and business finances separated is easy. It does take a little work at the start to get things set up correctly, but once they are it is simple to keep a hard line between personal and business accounts. Business credit cards offer their own rewards programs, and you can use them in conjunction with your personal cards.

I use the Ink Business Cash Credit Card from Chase myself, which is great because I can combine rewards with my personal Chase Ultimate Rewards account. With the Ink Business Cash, you earn a bonus of $500 cash back after you spend $3,000 on purchases within three months of opening the card, and 5% cash back on the first $25,000 spent each account anniversary year in combined purchases at office supply stores, as well as internet, cable and phone services.

Ink Business Preferred Credit Card is another great choice. The Ink Business Preferred has a $95 annual fee, but you earn 80,000 bonus points after you spend $5,000 on purchases in the first three months after opening the card, which is worth $1,000 toward travel when you redeem through Chase Ultimate Rewards.

With Ink Business Preferred, you also earn three points per $1 on the first $150,000 spent on travel and select business categories each account anniversary year and 1x points per $1 on all other purchases, with no limit to the amount you can earn. The Ink Business Preferred also provides cards for your employees at no extra cost, and has no foreign transaction fees.

If you are a fan of premium travel, check out The Business Platinum Card from American Express. The Business Platinum Card has a $595 annual fee, but you can earn up to 75,000 Membership Rewards points – 50,000 once you spend $10,000 in the first three months of membership, plus an extra 25,000 points after you spend an additional $10,000 all on qualifying purchases in the same time period. In addition to 5x the points on flights and prepaid hotels on amextravel.com, you can get an airline bonus, statement credits from Dell, and (if you register before 12/31/2019) a year of Platinum Global Access from WeWork that provides access to more than 300 workspaces in more than 75 cities.

While it may seem easier to dump business receipts in a shoe box and let your accountant deal with them every spring, updating your financial records at least monthly gives you the freshest information to run your business. It helps protect your corporate veil and makes tax time a breeze. There are many reasons to keep your business finances walled off from your personal money – but the only reason to mix your money is being too lazy to set things up properly.

Learn more about the Ink Business Cash Credit Card from Business Insider’s partner The Points Guy »

Learn more about the Ink Business Preferred Credit Card from Business Insider’s partner The Points Guy »

Learn more about the The Business Platinum® Card from American Express from Business Insider’s partner The Points Guy »