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Legality of Mixing Personal and Business Charges

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I had the following question on my post about 50 Fun Facts About Credit Cards that I wanted to float by you all and see if my answer was on point or off base.

Jim,

Is it illegal to charge business and personal charges on the same credit card, if we pay each item separately from appropriate accounts? I have been doing this for years, and my accountant just informed me that it is not legal, which I think is wrong information, but cannot locate a place to find the answer — can you lend me some correct facts?? thanks — Lauren

I’m not a lawyer and so I can’t be certain of the legality but I don’t see why it would be illegal for you to charge business expenses on your credit card. Consider the situation where you’re an employee and you buy something for your employer. When you do that, you probably submit an expense report and your employer pays you back some time later. If the mixing of business and personal charges on the same credit card were illegal, then this wouldn’t ever happen.

Now, one reason why you wouldn’t want to mix the two is when you have a limited liability corporation (or some other entity) and you are trying to shield your personal assets from your business liability. In that case, you have to clearly delineate between your business and personal finances – mixing the two will blur that line and expose you to personal liability if something happens in your business. So, while charging business and personal to the same card is not illegal, it’s generally considered a bad idea because it takes away the only benefit an LLC provides – personal liability separation.

Anyone else care to weigh in?

{ 13 comments, please add your thoughts now! }

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13 Responses to “Legality of Mixing Personal and Business Charges”

  1. Kevin Spring says:

    Another point you might want to add is that in American Express business cards it says in the mouseprint that if the company cannot pay the balance then they will hold the card holder responsible for the balance. Ask all the Enron employees what is priceless, losing your job, losing your retirement, or having a collection agent calling you to pay up on the $5,000 you charged as a business expense on your American Express business card.

  2. tinyhands says:

    My interpretation is the same as yours. Perhaps the accountant was thinking about taking non-reimbursed business tax deductions on personal property, which is an obvious no-no.

  3. I interpret the situation the same way. Another way my college told me to help your cause is to add your company name when you sign for expenses. For instance, in college I rented a karaoke machine on my personal credit card, but I signed the name “Presh Talwalkar of ZZZ Dorm of YYY University.” We were told this gave us University support for any ensuing legal issues.

  4. Lord says:

    I believe you are basically correct; it is more a matter of simplicity to have a separate business card. One thing to keep in mind is the name of the payee and the amount does not document a business expense, the purpose must also be provided which is usually done on POs.

  5. Tim says:

    it depends.

  6. It’s been a looooooong time since I delved into tax law, but I think you are correct, that it’s not illegal. That said, the reader should carefully document all of the expenses in case of an audit and be able to back up each and every deduction. It would simply be easier to do if he kept a separate card for business.

  7. Is the writer charging business expenses to the personal card, or are the charging personal items to the business card?

    I am no lawyer, but I can see where if the card is specifically a business card, issued by an employer (rather than self employed) then charging personal expenses might be a problem. I know that if you work for the government, and they issue you a card, then using it for ANYTHING personal, even if you pay it off, is a big no-no.

    Ask the MSG who worked for me who charged lunch at a strip club on his card :) Not a good day for him-the business name popped up a big red flag that it wasn’t related to US Army business.

  8. Steve says:

    For most situations the IRS simply does not care how you paid for an item. What they will care about is what you deduct and what you do not.

    For most self employed people, keeping business expenses on one card and personal expenses on another is just a mater of book keeping simplicity.

  9. thc says:

    Time for Lauren to find a new accountant.

  10. kitty says:

    I am not a lawyer, but from my experience it depends on the company rules. If the company pays directly to the card, then yes it should only be used for business. But if the agreement states that you are the one responsible (as is the case with my corporate Amex), and that you still have to fill out expense account that needs to get approved, then I think you could.

    I have a Corporate Amex from a very big Fortune 500 company. My terms and conditions say that I am ultimately responsible for the charges, and if they don’t get full balance every month not only will they charge fees, but they’ll send reminder to me and my manager. Next month – to the manager’s manager, etc. The funny thing is that the only time this late payment happens is when the company is too late in processing the expense account. Then you get to put the late charges on another expense account as “miscellaneous expense”, but not before your manager gets spam from them and ignores it.

    One time I didn’t use the card in 3 years or so – no business trips. So when I finally got to go on a trip, I found out that they suspended the card for inactivity. So I had to re-activate it. Their suggestion on avoiding something like this in future was – buy something with it every year or so… Obviously, if you don’t go on trips the only thing I could buy is personal.

  11. Soccer9040 says:

    Its not illegal, but if you ever were in court defending yourself, the other lawyer will try to to prove that your business is not a business because you commingled your assets and expenses. This is called piercing the corporate veil. Its better to have 2 cards if you have alot of transactions.

    I have a tiny business. I pay what I have to with my personal card each month, and then the business reimburses me each month.

    Its really up to you.

  12. Mel says:

    Isn’t the employer responsible for income taxes if personal and business charges are on personal card (for airline miles) and the business pays the credit card balances?


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