If you provide your employees with a company credit card, eventually someone is going to use it for a personal expense. It may be an honest mistake on their part, but it could create potential problems for your business. It is very important to review employee credit card charges.
First and foremost, your company is responsible for an employee's personal charge because it was on the company card. If the employee does not reimburse the company within a reasonable amount of time, the charge may be considered taxable wages and the employer would be subject to paying unemployment and other employer related taxes on those monies.
Several years ago, a client had an employee who regularly used the company card for personal expenses. It started out as an occasional thing, and the employee would notify them the next day. Then the charges started appearing more often. This created several problems. First, every purchase the employee made had to be reviewed to determine which ones were personal. Then a receivable would have to be created for the employee until the charges could be deducted from their paycheck. It cost the client extra time and money every month to keep track of the expenses and receivable. After several months, they took the credit card away from the employee.
Another problem is when an owner uses the corporate credit card for personal expenses. According to the National Federation of Independent Businesses, 49% of small business owners used personal credit cards for business expenses in 2011, up from 42% in 2009. One of the main reasons business owners combine business and personal expenses on one credit card is to increase their reward point perks on one credit card. Co-mingling business and personal credit card expenses costs you more money in bookkeeping costs or tax preparation fees when someone else has to record the transactions for you.
If you are operating as a single member LLC, keeping business and personal transactions separated can provide you with some level of protection. In the event you are sued, if you have co-mingled too much of your personal and business expenses, it is possible to lose the protection you were looking for when you set up your LLC, and be treated as a sole proprietor. Other income tax complications may come into play.
At Off-Site Business Services, we can help you set-up appropriate billing systems for your business and monitor your charge accounts. Take charge of your business bookkeeping and give us a call today!