When we perform our clients’ bookkeeping, it is quite common to see they use their personal credit cards for business expenses.
Since they use the cards exclusively for businesses only, they pay the balance dues by business checking accounts.
Are these practice okay with IRS when the credit cards are not under the businesses’ names?
The answer is it depends.
If you setup an accountable plan internally in a proper way, with sufficient substantiation, you can use the personal credit cards for business expenses.
Accountable plan means the company adopts a reimbursement arrangement with the employees who are required to submit receipts in a reasonable period of time in order to get reimbursement. With proper substantiation, the company is allowed to pay for the person credit card balance due if all the charges are business related.
In case of audit and there is lack of substantiation, the amount paid by the company will be treated as compensation to you which is your taxable income. Don’t overlook the importance of documentation.
The accountable plan is set up internally, no filing to IRS is required to maintain the plan.
Certainly, we highly recommend you use business credit cards for business expenses whenever possible.
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