Using personal credit cards for business unwise

Electrical Apparatus, Oct 1997

Borrowing on personal credit cards to finance a business is an expensive form of financing that Inc. magazine's Online publication proBusiness says is likely to get pricier. The U.S. Supreme Court recently decided there could be no limit on late fees and other penalties.

Moreover, entrepreneurs who use the same credit cards for business and personal purchases may find it difficult to prove to the IRS how much interest is tax deductible. Credit card interest on business purchases may be deducted, but not personal interest charges. Moreover, sorting out charges for office supplies and business travel on one hand and pharmacy costs and children's toys on the other can be confusing.

If your company can't qualify for a corporate card, proBusiness suggests using one personal card solely for business. If you do have a corporate card, CPA Harvey J. Berger of Grant Thornton's Washington, D.C., office, warns: "You've got to keep those transactions squeaky-clean to avoid IRS challenges." He recommends writing a personal check each month to reimburse the company for any personal expenses that may have been charged to the corporate card.

Finally, Berger warns, keep good records. "I can't tell you how much money and time business owners waste when they-or their CPAs or lawyers-have to hunt through old records to try to figure out what a credit card was used for," he says.