Paying personal purchases on company credit card.

ken-lavell · ‎December 10, 2018

I’m the sole owner of an s-corp and have an owner’s equity account. This months cc bill has both personal and business purchases. I would like to pay off the credit card balance using $ from the company checking account.

For example : I owe $150 on the cc, $25 for personal purchases and $125 for business purchases. What is the best way of dealing with this in QB. Do I draw the $25 out of the owners equity account?

thx

qbteachmt · ‎December 10, 2018

Ken, I'd like to offer some better guidance.

"I’m the sole owner of an s-corp"

No, you are the sole shareholder. A corporation is its own entity.

"and have an owner’s equity account."

There is no such account for this corporation. There is Shareholder equity, not Owner. This matters.

And there is NO such thing as Owner Draw. You might actually need to set this up as "Owed From Shareholder" and that is an Other Asset for the corporation. Or this is Shareholder Distribution, and then you run into issues of casual distributions being recategorized by the IRS as attempts to avoid payroll taxes. Because you are an employee-shareholder. Distributions are not casual takings from the corporation. It is not your piggy bank.

"This months cc bill has both personal and business purchases."

If this is a corporate credit card, this is called "commingling" and is mixing personal and business. Further explained, you are using the Corporate's finances for personal.

The rules for what type of activity is allowed for the movement of funds between the corporation and shareholders are very narrow. The whole point of having a corporation is the protection of Self from Business. Your personal assets and the corporation's assets and risks should be serapate. Once you commingle, there is no longer that separation. This is called "piercing the corporate veil."

If you do not honor this separation, why would an attorney or collection agency honor it?

"I would like to pay off the credit card balance using $ from the company checking account."

Now we have established that the Enter Credit Card Charges are entered as distributions, or "Due From" activities.

And you really need guidance from your own CPA for all of this, as it is a horrible situation when allowed to continue.

If this is a personal credit card, then NONE of that credit card is tracked in the corporate data file. The shareholder "paid personally" and it doesn't matter how you paid for business activities: cash, check, whatever. You would simply reimburse yourself from the corporation. For instance, if you buy printer paper, then repay yourself on a check, for office supplies. Instead of buying from Staples, the corporation really is buying from you.

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qbteachmt · ‎December 10, 2018

Ken, I'd like to offer some better guidance.

"I’m the sole owner of an s-corp"

No, you are the sole shareholder. A corporation is its own entity.

"and have an owner’s equity account."

There is no such account for this corporation. There is Shareholder equity, not Owner. This matters.

And there is NO such thing as Owner Draw. You might actually need to set this up as "Owed From Shareholder" and that is an Other Asset for the corporation. Or this is Shareholder Distribution, and then you run into issues of casual distributions being recategorized by the IRS as attempts to avoid payroll taxes. Because you are an employee-shareholder. Distributions are not casual takings from the corporation. It is not your piggy bank.

"This months cc bill has both personal and business purchases."

If this is a corporate credit card, this is called "commingling" and is mixing personal and business. Further explained, you are using the Corporate's finances for personal.

The rules for what type of activity is allowed for the movement of funds between the corporation and shareholders are very narrow. The whole point of having a corporation is the protection of Self from Business. Your personal assets and the corporation's assets and risks should be serapate. Once you commingle, there is no longer that separation. This is called "piercing the corporate veil."

If you do not honor this separation, why would an attorney or collection agency honor it?

"I would like to pay off the credit card balance using $ from the company checking account."

Now we have established that the Enter Credit Card Charges are entered as distributions, or "Due From" activities.

And you really need guidance from your own CPA for all of this, as it is a horrible situation when allowed to continue.

If this is a personal credit card, then NONE of that credit card is tracked in the corporate data file. The shareholder "paid personally" and it doesn't matter how you paid for business activities: cash, check, whatever. You would simply reimburse yourself from the corporation. For instance, if you buy printer paper, then repay yourself on a check, for office supplies. Instead of buying from Staples, the corporation really is buying from you.

Taxgirlie · ‎December 10, 2018

Nicely stated!

qbteachmt · ‎December 10, 2018

Learning new rules is always a bit of a pain.

Anonymous · ‎December 10, 2018

Great job! I worked for a family-owned corporation that allowed commingling all the time: the owner would use the business card points for personal travel or to purchase personal items. There was also a lot of "employee advances" categorization due to the employee paying for things that were personal in nature but wanting the company to provide reimbursement. The employee in question was one of the co-owners. It was a mess and I relieved myself of those duties because I didn't want to learn bad practices and they weren't interested in changing anything. Business as usual.

nancy4 · ‎December 10, 2018

Ken,

Everything that was already said.

You need two cards--one in your personal name for personal expenses and one in your business name for business expenses. In order to make it easy to tell which is which, spend the $5.00 (or whatever the fee is) and get custom cards made. Have a business-related picture, such as your business logo, put on your business card, and have a personal picture, such as your wife, kids, dog, on your personal card. And unless your wife works in the business and has actual business expenses, don't give her a business card.

qbteachmt · ‎December 10, 2018

"the owner would use the business card points for personal travel or to purchase personal items."

Which makes it Distributed Value to them, for tax purposes.

"There was also a lot of "employee advances" categorization due to the employee paying for things that were personal in nature but wanting the company to provide reimbursement. The employee in question was one of the co-owners."

The company's funds might be used, but that doesn't make it a Business expense; that is why you post to the Balance Sheet = give that visibility.

"It was a mess and I relieved myself of those duties because I didn't want to learn bad practices and they weren't interested in changing anything. Business as usual."

You get a lot of support, or lack thereof, from their CPA, too. If the CPA lets "employee advances" ride year after year without every settling up, or worse, offsets it to Misc Expense, I stop working with those people.

Anonymous · ‎December 10, 2018

Yes I am glad that I left because you have to respect the discipline of accounting & the rules that are there to protect one's business. It's like they were shooting themselves in the foot everyday. I am glad I saw your post because I thought I was missing something.

qbteachmt · ‎December 10, 2018

"I thought I was missing something."

You're Fine. Thanks for contributing.

Teri · ‎December 10, 2018

Just wanted to "second" that (what QBT said) since I agree 110%. Don't put yourself at risk with client who wants you to do bad accounting. You could be blamed and fined or sued, so just not worth that. One of my colleague's client's CPAs is facing that right now and having to pay client's penalties as well.

Taxgirlie · ‎December 10, 2018

Ken

When you post the individual credit card expenses - instead of posting the personal charges to an expense account you should post it to the Owned from Shareholder account (Other current asset) Hope this helps! : )

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Paying personal purchases on company credit card.