What Can You Charge on a Business Credit Card?

A business credit card helps companies manage operational expenditures. Its primary function is to distinguish personal from business finances. It streamlines tracking and categorization of company spending, important for sound financial management. This simplifies accounting and provides a precise overview of financial health.

Understanding Business Expenses

A legitimate business expense is a cost that is “ordinary and necessary” for business operations. An ordinary expense is common and accepted in a specific industry, typical for that line of work. A necessary expense is helpful and appropriate, even if not indispensable. For instance, a marketing firm purchasing graphic design software would consider it both ordinary and necessary.

The distinction between business and personal expenses is fundamental for financial clarity. Personal expenses are costs incurred for an individual’s private needs, such as household groceries or personal vacations. Business expenses are solely for generating income or operating the business. Using a business credit card exclusively for business purchases helps maintain this separation, important for accurate financial reporting and avoiding complications.

Common Categories of Allowable Charges

Business credit cards can be used for a wide range of expenditures that meet the “ordinary and necessary” criteria, supporting operations and growth. Common categories include office supplies and equipment like pens, paper, printers, and computers, routinely used in most business settings. These items are used in administrative and operational tasks.

Utilities and rent are also typical charges, covering essential services like office electricity, internet connectivity, and payments for leased office space. These expenses are fundamental to maintaining a physical or virtual business presence.

Travel and entertainment expenses include flights, hotel stays, and business meals. A clear business purpose must exist, such as attending industry conferences, meeting clients, or conducting remote work. For example, a meal with a client to discuss a project is generally an appropriate charge.

Marketing and advertising activities are another area for business credit card use. This includes website development, online advertising, and print materials. These expenditures are necessary for reaching customers and promoting offerings.

Professional services, such as legal fees, accounting services, and consulting fees, are charged to business credit cards. These services provide specialized expertise supporting legal compliance, financial management, and strategic planning. Subscriptions to industry-specific software or Customer Relationship Management (CRM) tools are also common.

For businesses that sell physical products, inventory and the cost of goods sold are substantial expenses that can be paid with a business credit card. This includes the direct costs of producing or acquiring the goods that the business sells. Certain employee-related costs, such as health insurance premiums and other employee benefits, can be charged. Some businesses may process employee salaries and wages through their credit card, though this typically involves specific arrangements. Various credit card fees, including annual fees, interest charges on business-related purchases, and processing fees incurred when accepting customer payments, are generally deductible if the card is used exclusively for business purposes.

Charges Not Permitted for Business Credit Cards

Certain expenditures should never be charged to business credit cards, primarily personal expenses. Using the card for items like home groceries, personal vacations, or non-business entertainment blurs financial lines. This undermines the card’s purpose of separating business and personal finances.

Charging personal expenses creates confusion in financial records and complicates business profitability assessment. For instance, personal clothing, unless it’s a uniform specifically required for work and unsuitable for everyday wear, should not be placed on a business card. Similarly, personal legal issues, such as divorce proceedings or estate planning, are not appropriate charges.

Beyond personal items, high-risk or non-operational expenses are not advised. Examples include cash advances, which incur high fees and interest rates, making them inefficient for accessing capital. Using a business credit card for speculative investments, such as cryptocurrency or gambling, is discouraged due to risks and potential for high interest charges. These transactions do not align with the card’s intended use for ordinary business operations.

Maintaining Accurate Records

Diligent record-keeping is a fundamental practice when using a business credit card. Every transaction requires proper documentation for financial transparency and accurate accounting. This involves retaining receipts and capturing specific details about each expense.

For each transaction, record the date, vendor, exact amount spent, and a clear description of the business purpose. For example, a hotel receipt from a business trip should itemize costs like the room and meals, include the hotel’s name and location, and state the dates of the stay and business reason. This detail helps substantiate the legitimacy of the expense.

Businesses can track expenses using spreadsheets, specialized accounting software, or dedicated expense management applications. Many modern accounting systems allow digital storage of receipts by scanning or photographing them, preventing issues like fading ink. Organizing records by tax year and expense category contributes to an efficient financial management system.

Comprehensive records provide a verifiable financial trail for credit card activity. This supports accurate financial statements, aids monitoring financial progress, and simplifies tax return preparation. Good record-keeping also provides a clear picture of cash flow, important for informed business decisions.