Credit card

[mircpa]

I was approved for a capital one venture credit card which will allow me to accumulate 2 miles every dollar i spent and redeem for for any airline miles. Obviously i would be paying all my personal bills through this card and payoff credit card within grace period every month so at to avoid interest charge. My question Can i pay office expenses like rent, telephone bill, utilities and office supplies through this card and get it reimbursed from my business, I am asking this in perspective to whether IRS will accept this approach in case of audit, and of course lease, utilities, telephone is in business name. The offer by credit card is quite tempting, going with exepenses what i have i can end up accumulating enough miles for round trip within US for me and my family every year.

mircpa

[Jack from Ohio]

NO.

Separate all the way, or the IRS auditor may disallow any deduction paid with your personal card. Seen this live and in person.

Get a second card.

[Kea]

If your question is whether you can use a personal credit card for business purchases, I believe the answer is "Yes." The main thing that IRS would be concerned about is that you have the receipt and can show the business purpose for the expense.

Than said, it is typically advisable to use a separate card for business purposes, just like you would have a separate bank account. It keeps the books cleaner to track all expenses separately. It also means you don't have to share your personal expense records with IRS when they audit your business expenses.

You may want to check if they will offer you a 2nd account. This is how I set mine up with Discover many years ago. I like the cash rebates (almost never fly). At the time, Discover did not offer a business card, so I just got another card with another account number. But when I make a business purchase at a merchant that does not accept Discover, I just use one of my other cards and then separate the receipt.

Note, I have not looked up any specific cites from IRS on this topic.

[jainen]

>>get it reimbursed from my business<<

If your business is anything but Schedule C, no, it's too complicated. Even for a sole proprietorship, it can never be real clean. If you operate at a loss, commingling personal funds adds to the argument that it is a personal hobby, not a business. At least have the business pay its own charges separately instead of using one personal check and getting reimbursed. And keep really really good records, more than just receipts.

[Pacun]

If you have a C corporation, you can create an accountable plan and get reimbursed from your employer.

I thought your question was tacitly asking about the fact that you will get about 2K in personal benefits yearly when your business "accummulates" the miles.

If there were 100% compliance, all employees who use their personal credit cards and get reimbursed by their employerr would have an entry on line 21 on form 1040 when they use the miles accummulated. A lot of federal, state and regular employees who travel for their employers would have an entry when they get reimbursement for food using the per diem method. Even, I bet you, some IRS employees who go to Atlanta for traning and get per diem for food and don't spend all the per diem in food DON'T have an entry on line 21.

Also, employees with company's phones or blackberries would add to their return the cost of that phone call made to your office when they call their co-worker to plan their personal weekend events. Also, tax preparers would add as income all those personal phone calls made from the office phone which could be directly traced to personal. ALSO, the office computer would never be 100% business since since the tax preparer goes to the internet or email on the office PC for personal benefit. 100% compliance is very hard if not impossible. Yes, you can argue materiality in most cases.

[mircpa]

I thank and respect for all who responded, from the IRS perspective, at end of every month i would be having invoices from various vendors who has sold product or services to my company to support deductions what i take on corporate tax returns, the issue is whether it matters to IRS who pays i.e. through business bank account or personal credit card account. Don't you think IRS will insist for invoices for deductions taken on tax returns, if then why would they be caring who is paying for as long as the services provided or product sold is in fact in the company's name. Let's say for example purpose when i receive telephone bill invoice, i would go to my bank withdraw money to make money order in phone company's name and mail them andkeep copy of invoice and money order to support my deduction on tax return, you think IRS would question this position also ?

[OldJack]

>>If your business is anything but Schedule C, no, it's too complicated. Even for a sole proprietorship, it can never be real clean. <<

It should not be complicated for those on this board, as we are all accountants or business people that have to deal with clients that do the commingling. If we can't do our own business we should not be doing taxes for others. As was said, its the proper receipts and proper documentation/procedure thats necessary for IRS and not the funds pot.

>>If there were 100% compliance, all employees who use their personal credit cards and get reimbursed by their employer would have an entry on line 21 on form 1040 when they use the miles accumulated.<<

As I recall, sometime ago, the IRS ruled airline mile benefits were not taxable to the employee.

[Lion EA]

If you're counting on some liability protection in an LLC or other entity, do NOT comingle business and personal funds. As has been mentioned, if biz vs. hobby could be an issue, do NOT comingle. If your purpose is airline miles for you and your family, that is NOT a business purpose. Get a separate account for your business. Or, get a separate card for you business linked to your main card.

[jainen]

>>the issue is whether it matters to IRS who pays<<

It matters. Who pays is every bit as important as how much and what it's for.

[Jack from Ohio]

I stick by my answer from personal experience in audit situations.

NO.

Separate all the way, or the IRS auditor may disallow any deduction paid with your personal card. Seen this live and in person.

Get a second card.

What you do with the "perks" is irrelevent.

[joanmcq]

I concur with all who are saying keep biz and personal strictly separate. Before I had a biz card, I had one personal MC I used only for biz. Are you a registered biz? Do you have a biz license, etc? I get Capitol One biz card solicitations all the time, so why not just get a biz card from the same company?

And the biz cards tend to have different bonuses; for example my Discover biz card gives me 5% cash back on all office supplies all the time, whereas my personal Discover card has different rotating 5% bonuses. But I still keep them separate; I don't book a biz trip hotel on my personal card just because that month my personal card has a bonus on hotels.

[Daune/CA]

>>If there were 100% compliance, all employees who use their personal credit cards and get reimbursed by their employer would have an entry on line 21 on form 1040 when they use the miles accumulated.<<

As I recall, sometime ago, the IRS ruled airline mile benefits were not taxable to the employee.

I used to work for airline and it was determined that air travel was not taxable to the employee, however the hotel discount we got at Westin Hotels, or any other hotel, were taxable to airline employee. Also, vice versa for hotel employees getting discount on UAL, who also owned Westin Hotels. air discount was taxable to them.

IRS ia not favorable to any type of co-mingling of funds.

[Pacun]

I used to work for airline and it was determined that air travel was not taxable to the employee, however the hotel discount we got at Westin Hotels, or any other hotel, were taxable to airline employee. Also, vice versa for hotel employees getting discount on UAL, who also owned Westin Hotels. air discount was taxable to them.

IRS ia not favorable to any type of co-mingling of funds.

Thank you for the clarification. It is true that if your employer runs certain type of business and you get discounts or free usage of your employer's services or product, you don't get tax on that benefit, ie, an airline who give free miles to its employees.

I was referring to another type of benefit. An employer (not an airline) sends an employee to Europe for a month. The employee uses his personal credit to pay for food and to pay for the plane tickets from the USA and Europe and when he travels within Europe. The employee gets as a benefit for using his credit card a lot of miles for the travel and also for the amount spent on food. When the employee comes back he gets reimburse for hotel, food and incidentals. If the employee doesn't spend all the per diem money on food, he should have an entry on line 21 of his 1040. I think he also should have an entry on line 21, when he travels on vacation from Virginia to California using the miles he accummulate by using his credit card.

[mircpa]

I am glad we are able to wrap up this topic with a lesson to learn, never comingle business and personal funds, I would definitely would get a new card or get additional supplementary card attached to my current card as one of the member suggested.

thanks

[joanmcq]

Thank you for the clarification. It is true that if your employer runs certain type of business and you get discounts or free usage of your employer's services or product, you don't get tax on that benefit, ie, an airline who give free miles to its employees.

I was referring to another type of benefit. An employer (not an airline) sends an employee to Europe for a month. The employee uses his personal credit to pay for food and to pay for the plane tickets from the USA and Europe and when he travels within Europe. The employee gets as a benefit for using his credit card a lot of miles for the travel and also for the amount spent on food. When the employee comes back he gets reimburse for hotel, food and incidentals. If the employee doesn't spend all the per diem money on food, he should have an entry on line 21 of his 1040. I think he also should have an entry on line 21, when he travels on vacation from Virginia to California using the miles he accummulate by using his credit card.

Collecting miles or other benefits was determined not to be income, even if the employee was reimbursed for the expenses. The example I remember is when I traveled for biz a lot. I joined frequent flyer programs on all the airlines since my employer booked the trips. It was ruled at some point that the miles I earned and later used for personal trips weren't income. This ruling happened way back, when these programs were fairly new. And please excuse my vagueness about the rulings, etc. I remember them because they were pertinent to me at the time, but that was a long time ago in a galaxy far, far away. I don't even think I was studying tax yet at that point.

[TAXBILLY]

http://www.sebc.org/legislative_updates/freqflyer.htm

taxbilly

[joanmcq]

Thanks, Taxbilly. I guess it was after I started doing taxes. Blessed are those that have cites!

I'm spending a lot of time in bed on my laptop after having minor surgery, but my brain is mush from the painkillers. lol. As opposed to the normal mush from too much tax work.

[Catherine]

Thanks, Taxbilly. I guess it was after I started doing taxes. Blessed are those that have cites!

I'm spending a lot of time in bed on my laptop after having minor surgery, but my brain is mush from the painkillers. lol. As opposed to the normal mush from too much tax work.

Feel better soon, Joan!

And am I opening another can of worms here - or is there a case for small exceptions? Such as, I buy a laser toner on sale at Staples for my office -- and have to use my personal card, because the business card wasn't in my wallet. Separate sales slip, not commingled with the school notebooks for my daughter, and I enter it in QuickBooks as a cash payment with a note in the memo field about circumstances.

Catherine

[joanmcq]

I've had a few instances of that; for example, a store/vendor that doesn't take Discover or I forget my biz checkbook when I go to a tax group meeting. Since I'm not a corp or other entity, I just book instances like that to 'owner contribution'. Same as if I pay cash for something (rare, but when its a mailing that costs less than $2...). A corp has to be vigilant. But IMHO, a one time error isn't going to pierce the corporate veil, but repeated, habitual, comingling will. Not to mention run you afoul of the 'running it like a business' part of the biz/hobby determination.