Rockel Bookkeeping

Martin County, Florida Bookkeeping Services

Is This A Business Or Personal Expense?

Is This A Business Or Personal Expense?

When it comes to charges that were put onto a company card, whether it was a personal purchase or not, it should be added to the books. I always try to talk my clients out of using their business cards for personal expenses, but some of them are very serious when it comes to those rewards points. Once a charge has been made, you have to determine if the transaction is business related or if it should be posted to an Equity account, and there can be a lot of grey area.

I love talking to different business owners because I have some of the most interesting and amusing conversations I’ve ever had in my adult life. Sometimes they try pretty hard to justify why a charge to their company checking account or credit card can be claimed as a business expense. This might come up with payments for medical procedures, maintenance on personal items that are used for networking, large-scale dues to a lodge that are used for networking, or replacing personal items damaged or lost in the course of business.

To help with the decision between an expense or Equity, ask yourself: Was this purchase directly used to benefit the business? If your answer is yes, can you explain how? To give some context on the items I listed above: medical procedures, maintenance on personal items (even those used for networking), and replacing personal items lost during business would typically need to be categorized as Owner Equity. Lodge dues used for networking may be able to be claimed as a business expense. In these situations, it can be tough to know what the right answer is without the help of a professional.

At the end of the day, you (the owner) are in charge of the business and the books. You’ll weigh the pros and cons and decide where you want the transactions posted to, but I highly recommend working with a CPA or accountant so they can help guide you when it comes to filing your taxes. As a bookkeeper, I let my clients know my suggestions on the matter, but if they really want that Netflix subscription added as a business expense, I oblige. When this type of situation comes up, I let them know that I’ll do what they want but that I’m questioning whether or not it will fly for tax time.

*Rockel Bookkeeping is a non-CPA firm, and I always suggest for you to reach out to your CPA if you have any questions about what should or could be considered a business expense.