Can You Use a Business Credit Card for Personal Expenses?

A business owner makes a purchase with a business credit card

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You’ve finally done it. You started thinking of your side hustle as an actual business and you applied for that shiny new business credit card. While you’re waiting for it to arrive, you may have a few questions. What exactly can you use that card for? Are there limits on what you can purchase? And if you’re close to maxing out your other cards, is it illegal to use a business credit card for personal use?

While it’s not exactly against the law to buy personal items using your business card, it’s probably not a good idea. Let’s take a look at why.

Key Takeaways

  • It isn’t illegal to use a business credit card for personal expenses, but it’s not recommended.
  • Putting personal expenditures on your business card can complicate your taxes.
  • Charging consumer expenses to your business credit card can reduce cash flow for your business, which can cause other problems.
  • Personal credit cards come with consumer protections not available to small business credit cards.

Business Credit Cards vs. Personal Credit Cards

The differences between business and personal credit cards can be broken down pretty simply: Personal credit cards are designed for consumer spending, including your groceries, movie theater tickets, and gas. Meanwhile, a business credit card is often used for purchases related to business operations such as inventory, supplies, travel, business services, and business entertainment, said John Cabell, Director, Banking and Payment Intelligence, J.D. Power and Associates, in an email to The Balance. 

Business credit cards also lack the protections offered by consumer cards. The CARD Act (Credit Card Accountability Responsibility and Disclosure Act) includes protections such as restricting the amount of upfront fees a card issuer can charge during the first year after an account is opened, as well as limiting the circumstances in which card issuers are able to increase interest rates.

Disadvantages of Using a Business Credit Card for Personal Expenses

Although it may seem like putting personal charges on your business credit card isn’t a bad idea, there are plenty of reasons to avoid this practice.

May Violate the Card’s Terms of Service

You remember those terms you agreed to when you opened your card? It turns out that putting personal purchases on your card may actually violate those terms. Business credit card terms may specifically disallow personal expenses, said Cabell. You’ll generally make your own spending decisions and your card issuer may not check your transactions. But in the end, you’re responsible for your purchasing activity, and violating the terms of service you signed could have consequences.

Complicates Taxes

Once you’ve started a small business, your taxes can become a lot more complicated. Managing small business deductions and understanding business tax credits is challenging enough—and mixing your business and personal expenses can make it much more difficult. In fact, Cabell said, “Mixing expenses makes it harder to track and manage business expenses, which are often important inputs to annual tax submission and financial reporting for the business.”

Complicates Your Business Finances

In addition to complicating your taxes, intermingling your personal and business spending can affect other financial aspects of your business. For example, putting personal charges on your business card can make it harder to manage your cash flow on a day-to-day basis. What if you need to place a large order of industrial-strength muffin pans but the total exceeds your available credit limit—because you just used your business card to book a vacation?

Complicates Liability

Businesses are businesses for a reason. Depending on how you operate, your business may protect your personal assets from liens or other liabilities. Muddying the waters of your LLC (or other registered business) by putting personal purchases on your business credit card can make it difficult to determine which of your personal assets are protected.

Imagine for a moment that you purchased a boat with your small business credit card. You won’t use it to entertain clients; you simply want to take your family out on the water occasionally. If a creditor sued your business for nonpayment, it’s possible your boat could be considered business property. It could be declared an asset and may be at risk of being taken as payment.

Personal Expenses To Avoid on a Business Credit Card

Have you ever heard the phrase “on a Zoom meeting, act as though your microphone is never muted and your camera is never off?” It’s essentially a warning to never say or do anything that could lead to embarrassment in front of your coworkers.

Do the same with your business credit card. If something would make your accountant suspicious, like spending several thousand dollars a month in client entertainment expenses or purchasing cryptocurrency, avoid it. This includes racking up personal expenses while on a business trip. Although it may be tempting to charge personal expenses to your business card, it can create a hassle when filing your taxes and trying to manage your business’s cash flow.

Frequently Asked Questions (FAQs)

Are you personally liable for a business credit card?

Yes. Card issuers generally require you to offer a personal guarantee when applying for a business credit card.

Are credit card fees tax-deductible?

They can be—and so can the interest you pay—as long as they meet the IRS’s definition of “ordinary and necessary expenses” for your business. Note that these fees must be for a card you use for your business, not for your personal expenses.

Can I use a personal credit card for business?

Using a personal credit card for your business expenses could create many of the same issues as doing the opposite, including complicating your taxes and reducing cash flow options. You’ll also potentially lose the tax deductions for your interest payments and annual fees.

Article Sources

  1. Internal Revenue Service. "2020 Publication 535." Page 3. See "What Can I Deduct?"