Business Credit Card Use Makes Recordkeeping Easier
If you have a small business, you may be wondering if you should have a credit card for your business. The answer to that is “Yes!”
A credit card can be a great benefit for entreprenuers. It can enable your business to build its credit standing, which can be useful when obtaining loans for future expansion and growth. Also, it provides a source of quick capital and makes it easier to manage business transactions.
Let’s say you’re at work running your business and the need for a calculator comes up. You run to the store to purchase it. What are you going to use to purchase it? Cash? A credit card?
In a business situation, you should never use cash for purchases unless you’re really good at keeping all of your receipts organized. (No, a shoebox full of receipts is not a good way to organize your receipts.) An organized receipt-filing method helps you itemize your business expenses at year-end for tax purposes. Plus, you need to save your receipts to document your tax-deductible expenses in case your business is ever audited by the IRS.
Personal Credit Card Use
If you’re using your personal credit card for business purposes, you’ll need to keep track of your business expenses separately from your personal expenses. This method makes recordkeeping much more difficult and time consuming, especially if you’re trying to separate your business expenses from your personal expenses at a later date. It may be harder to remember which expense was what. Employers have enough to keep track of without more added to the list.
Personal credit card use for business expenses also makes it more difficult to determine how well your business is performing for you and the IRS. Therefore, the IRS strongly suggests that you keep your personal expenses separate from your business expenses. Otherwise, your business may be exposed to IRS scrutiny.
Business Credit Card Use
A business credit card can ease your company’s recordkeeping process. Plus, by using a business credit card, it lets the IRS know that you’re serious about your business and the workplace.
If a business has a company credit card, the expenses can be itemized on a log sheet or in QuickBooks™, which is the accounting software that most small business owners use. When the credit card statement comes in, transactions can be downloaded into QuickBooks and itemized on a monthly basis. When you are ready to do your small business taxes, a report of all of your expenses can be printed for your CPA or accountant, so you’re not stuck trying to organize all of those receipts. Additionally, the detailed credit card statements provide you with proof of your tax-deductible business expenses for the IRS.
Some credit card companies will even provide you with a year-end statement summary that has your transactions itemized and categorized. These summaries are also helpful in planning your future business expenditures.
A Word of Caution
If you get a business credit card, just remember, it’s always a good idea to pay off those monthly balances in order to avoid paying any late fees and penalties. And, once you stop making full payments, you may be sending your company into a debt spiral.
– Ariane of The Payroll Department Blog Team
The Payroll Department, located in Brownsburg, IN, provides its clients with the very best in payroll services.