As a small business owner, you’ve got a lot on your plate, and it might seem easier and more convenient to use the same credit card for your business and personal expenses than to completely separate the two.
There are many reasons to separate your business and personal finances, but could it be considered theft to swipe your business card for non-business purchases? It depends.
Is using a company credit card for personal use embezzlement?
The term embezzlement carries a heavy connotation, but if you’re the only owner of your business, it’s not something you need to worry about.
According to the U.S. Department of Justice, embezzlement occurs when someone:
- Has the trust of or a fiduciary relationship with their employer
- Came into possession or care of the property by virtue of their employment
- Uses the property fraudulently for their own use
- Acts with the intent to deprive the property’s owner of using it
If you’re the only owner of your business, using your business credit card for personal use doesn’t meet these standards.
If your business has multiple owners, however, and you use the company’s credit card for personal use, it could be considered embezzlement if it meets the Department of Justice criteria as it relates to the other owners of the business. The same goes if you’re an employee of a business rather than the owner.
Can I use my corporate credit card for personal use?
Corporate credit cards are designed for business use, so it’s best to avoid using one for your personal expenses.
If you mix your business and personal purchases, it could become a headache at tax time when you’re trying to figure out which expenses you can deduct. It gets even more complicated if you carried a balance on the card because you can only deduct interest paid on business-related transactions.
Using your corporate credit card could also potentially result in having your account shut down. In the terms and conditions of the American Express Corporate Green Card, for instance, it states: “The Corporate Card may be used solely for commercial business purposes and in accordance with your Company’s policy.”
By charging personal expenses to the card, you’re in violation of your card agreement, and the card issuer could technically close your account if it finds out.
Is it illegal to use a business account for personal use?
As long as you’re the only owner of your business, there’s nothing legally wrong with using a business bank account or credit card for your own purposes. If you do, though, it can make your life difficult down the road when trying to run your accounting or file your tax return.
Now, if you’re in a business with multiple owners, using a business account for personal use could be considered fraud, so it’s best to keep your business and personal affairs completely separate.
Best practices for keeping personal and business accounts separate
If you’re a business owner or an employee with access to a company credit card or bank account, you’re better off keeping personal and business affairs separate. Here are some best practices for maintaining that partition intact:
- Open up entirely different accounts for your business expenses rather than using your personal bank account or credit card.
- Pay yourself a salary — this can be tough when you’re just starting out, but making the transfer from business to personal official can make your life easier.
- Keep a separate file of business expense receipts.
- Communicate with other stakeholders, including partners and family members, about your intentions and share your process.
- Understand what the IRS considers a business expense (hint: consider working with a tax professional if you’re not sure).
- If you use certain things for both business and personal use, such as a cell phone, keep logs of when you use them for business use.
The bottom line
Structuring your business in a way to keep its affairs separate from your personal finances is an essential step in establishing your company. Even if you’re just starting out, drawing that line between the two is crucial.
If you haven’t done this yet, take steps now to start the process. It can take some time to complete your new system, but it will save you a lot of time and money in the long run.
And remember, while it’s a good idea to keep personal expenses off your business credit card, you can use rewards earned with that card for personal use without running into problems.
This article was originally written on September 27, 2019 and updated on December 10, 2020.