Rules to Follow With Business Credit Card Charges
November 5th, 2015 at 11:23 AM
Do you use a business credit or debit card for some corporate expenses? Most of my clients do for travel entertainment, vehicle expenses, etc.
Regardless of how you operate as a sole proprietor or corporation for tax purposes, you need to properly document each and every business deduction. The credit or debit card only provides proof of payment; that’s it–the IRS says you need further documentation or the entire expense will be disallowed–and possibly taxable income to you, personally!
Therefore, in addition to the credit card statement, you need a DETAILED receipt, including exactly what you paid for–such as a restaurant receipt itemizing the dinners, food, and drink.
Corporation: Double Jeopardy
As a corporation owner, you are considered an employee of the company. This requires the need for a tax-law-defined accountable plan; this is a reimbursement arrangement requiring 3 specific elements.
- Expenses must have a business connection.
- You must substantiate the expense as required by tax law–mileage log or for entertainment who,where.why, details.
- You must return any excess allowance to the corporation–these are amounts NOT substantiated.
If you do not meet these requirements, the corporation needs to put a dollar value of your failures to document on your W-2; if not done timely, you face payroll tax penalties. Ouch!!
Therefore, regardless of your form of entity, get in the habit of documenting your business expenses.
I provide sample accountable plans to clients upon request.