Being the sole proprietor of a business, it's highly likely that you have a credit card for personal use, and one for business use. This can make things a little confusing, as you may wonder if you can use your business credit account for personal use, and whether or not this would cause any problems come tax time. While you can do this, it can make things a little confusing, and you will need to keep the records of business and personal purchases separate.
Being A Sole Owner Of A Business Means You Are The Business
If you are the sole owner of the business, then in the eyes of creditors, you are the business. This means that your personal credit rating and business credit score are both connected. Having a lower credit ranking on one also means the other will follow suit, same with having a higher credit score. For instance, you may be close to maxing out your business account, which will end up lowering your personal credit rating as well and show you as a higher risk of defaulting on one of your cards. The logic is like that of a couple who have a large debt. Thinking that putting the bad debt into one person's name is a poor choice, as due to being a couple, your credit scores are linked. It will look like one person is close to default, which essentially says that the couple is close to being in this situation. If you have too high of a debt, then transfer debt from personal to business, or visa versa may be a better idea than making personal purchases on your business credit acc ount.
Be Organised With Your Business Transactions
Keeping all your business purchases on your business account means that at taxation time, all the purchases are there and readily available, making it easier for you to claim the money back on tax. If you mix up the usage of your cards, you may end up missing out on tax deductions. Especially as many people don't realise what they can actually claim as a deduction, and what they can't.
Also, the IRS may see the personal purchases made on your business card and assume that you aren't a business, but it is your hobby. In your business life, you need to show that you are serious to be taken seriously. Find out about credit cards from National Australia Bank and Commonwealth Bank.
Some Purchases May Crossover
Sometimes, business and personal purchases may crossover, such as a car, computer, etc. That's not a problem, and not something to worry about. In the past, you may have made personal transactions on your business card. If this is the case, then make sure to keep the records of this for tax time. Having separate accounts is recommended by experts, but not mandatory. Keeping your two cards separate is an idea so as to not get confused when making a purchase. On the statement for you business account, highlight the personal purchases you have made using a highlighter, and the business transactions using a highlighter of a different colour.
Keeping your personal and business accounts is always best, to show a professional and serious side to the IRS, and to make tax time easier in terms of deductions.
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