It’s better to keep business and personal expenses separate. That’s the lesson being reiterated to Marco Rubio this week, as reporters pore over his 2005 and 2006 Republican Party credit card statements. The statements, released Saturday by his campaign, "show a pattern of falling behind on payments while mingling personal and political spending," according to the New York Times.
What did Rubio do, exactly? When he was the speaker of the Florida House of Representatives, Rubio used his GOP-issued credit card to pay for some personal expenses. Rubio claims he paid for all of those personal expenses with his own personal money, but statements show that those payments often came late. None of this is illegal – but political opponents like Jeb Bush have jumped on it as exposing a lack of financial responsibility.
But is it actually financially irresponsible to use a business card for personal expenses?
Let’s get one thing out of the way: if you’re an employee of a large company and you have a business card, you usually agree to only use that credit card for verified business purchases. Make sure you understand what you agreed to when you received the business card. But for small business owners or sole proprietors, the boundaries between personal and business can get real blurry real fast.
There’s one major reason using a business card for personal expenses isn’t recommended: business cards don’t have any of the protections that consumer cards do. The Credit Card Accountability and Disclosure Act of 2009 protects consumers in a number of ways: it gives consumers enough time to pay bills, stopped retroactive rate increases, and made it easier to pay down debt.
In other words, if you put a bunch of personal expenses on your business card and can’t pay the bill, you lose a lot of protections that protect you from excess fees or rate increases.
If you do want to mix personal and business expenses for any reason (some business cards have useful rewards programs for office supplies, which can come in handy around Back to School season), make sure you keep your books organized and clean. One problem Rubio is running into right now is that it’s hard for him to prove that the personal money he used to pay off those credit card expenses was actually personal money – the relevant bank statements are too old to be retrieved.
Here are a few tips to protect yourself in case anyone comes to take a look at your books:
Keep every receipt. This will help you prove which expenses are personal and which are business.
Keep relevant bank statements from both personal and business accounts. Anything that shows you made a payment to the business card should be kept as proof.
Don’t deduct personal expenses as business expenses on your taxes. This one should be obvious, but sometimes people think they can get away with it or justify it with twisted logic. Be safe: don’t deduct anything you can’t vigorously defend.
What do you think of Marco Rubio’s credit card woes? Do you think it shows him to be financially irresponsible? Better or worse than Scott Walker’s problems? Let us know in the comments.