One of the most common financial mistakes you can make as an entrepreneur is putting your business spending on a personal credit card. It might be convenient at the time, but, this habit can actually cost you money and maybe more important time.
Here are three reasons why you should put your business spending on a business credit card, no matter how small.
1. Business credit card expenses are tax-deductible.
As an entrepreneur, you enjoy many advantages that traditional employees cannot enjoy. One of those opportunities is the ability to deduct business-related expenses on your tax return.
Some of these deductible expenses include annual fees and interest charges if all purchases are business-related. These expenses can be claimed on your Schedule C of the U.S. Federal Tax Return.
If your personal credit card charges an annual fee, you cannot deduct the annual fee, even if you made at least one business purchase on it. There are many excellent business credit cards to choose from that will not only help you save money at tax time but also earn bonus points for business-type purchases too. Some of these bonuses are as high as $1,000 in rewards.
2. Business credit cards specialize in business purchases.
A rewards credit card is only as good as its program. If you aren't earning bonus points (at least one-and-a-half points per dollar spent) on your most common purchases, you need to look for a new card that will.
Like personal credit cards, some business credit cards will offer a flat-rate cashback rate on every purchase and others will pay up to five points per dollar for select purchases. You need to decide what types of business purchases you will make and find the card that will award you the most points for those purchases.
For example, you might apply for the Chase Ink Business Preferred because you have the opportunity to earn three points per dollar on the first $150,000 in combined spending for following purchases:
- Internet, cable, and phone services
- Social media and search engine advertising
- Shipping purchases
Since you most likely make purchases in most, if not all, of these categories, you can easily earn bonus points that you might not earn with your personal card.
If you frequently use a certain airline or hotel when you travel, you can also see if they offer a co-branded business card. In some cases, you can enjoy additional travel perks and also have different purchase reward opportunities that are more business-friendly.
And, if you own both the business and personal versions of the card, you might be able to "pool" your rewards points. This is exactly what I do with my Sapphire Preferred and Ink Preferred credit cards.
3. Owning a business card makes bookkeeping easier.
Depending on how many business purchases you make in an average month, it can be difficult and time-consuming to separate your business purchases from personal expenses. You can still deduct your business spending at tax time, even if you use your personal card. However, you might overlook several expenses.
By making every business expense with a business credit card, your bookkeeping will be much easier. If you use a digital accounting program like Freshbooks or Quickbooks, you can export your expenses and immediately know exactly how much you spend.
When you add multiple employees to your business, most business cards will issue additional cards for free. Your employees make the purchases and you get to collect the purchase rewards.
If you plan on issuing employee cards in the future, using a business card for yourself means you can immediately issue an employee card later because you are already prepared for business expansion.
If you're an established entrepreneur, do yourself a favor and apply for a business card. The time you will save in bookkeeping means more free time to grow your business (or relax).
Most personal cash back and travel rewards credit cards have a similar business offering. Of course, you should also look for a business credit card that will give bonus points on all those purchases that will only earn the base rate with your personal card.
After all, that's a perk of being a business owner, right?