It has taken you years to progress through the rewards channel. When you remember the flights before preferred seating, being the last passenger to be called onto the packed airplane you shutter in horror of returning to that level of incivility. The overhead storage was packed leaving no option but to gate check your bag or worse, have it thrown in with all the other luggage to be lost upon arriving at your final destination. (And you know what its like to go without a change of clothes from a lost bag!)
No, your years of patronage to that airline is now worth it with the miles and preferred seating you enjoy each time you book a flight.
But now that you formed an LLC, how can you still get those miles from your personal card as a business expense?
As a small business owner, virtually everything is for the business, leading to confusion where to charge the expenses. But when you’ve spent so long climbing up the loyalty rewards ladder, why sacrifice benefits just to purchase with your business card without the rewards? There must be a way to still get the benefits of the rewards card and still get the business deduction.
Why does your accountant keep telling you to separate the business and personal expenses?
When you form an LLC, you have the opportunity to make a decision how to be taxed. For this post, we’ll assume you chose to be taxed as an S-corporation, therefore creating a separate taxable entity from you personally. When you did this, you created a completely different entity in the eyes of the law and the IRS and it is viewed most like a corporation (the specifics vary by state). This means the LLC is seen as its own “person” if you will.
When you created this separation, you created something referred to as the “corporate veil”. This imagery suggests a veil around the business that everything within the veil is for the company and everything outside the veil is not. Practically speaking for an LLC, it means actions by the company will not result in legal liability to the owner of the LLC.
There is an exception to this.
You can be held personally liable for the actions of the LLC if you “pierce the corporate veil”.
Piercing the corporate veil is more legal than accounting but for our purposes, using the company as a slush fund for your personal expenses with no separation between company and personal leaves the door open to this liability, and this is an unnecessary business risk.
What does this have to do with credit card rewards?
To avoid piercing the corporate veil, all expenses for the company need to be on accounts owned by the company, including credit cards. Deductible business expenses need to show up in the accounts (read: tax ID number) of the business and you can do that primarily in one of two ways:
1. Apply for a business credit card.
This is not the same as a personal card although your name will be on the card. The card is issued to the tax identification number of the LLC, a very important distinction. Depending on your current rewards affiliation, the same rewards may be available in the LLC as in the personal (or maybe better). You may then be able combine miles or points together from the business and the personal. This guy explains how.
2. Reimburse yourself for the business expenses to make sure the expense is deductible.
Chances are at one time you worked at a company where you would occasionally spend personal money on behalf of the company be it cell phone, parking or meals. At the end of the month, you created an expense report with receipts and submitted it to accounting for reimbursement. That is exactly the process that needs to be created to expense business expenses on a personal card. This way, the expense shows up on the business bank account reimbursing you for your expense. Detailed and laborious with lots of documentation, this is exactly what stands up to the IRS when they come looking.
It is possible given the competitive nature of credit card rewards that your bank and/or airline will allow you the same benefits with your new card as with your old. While that is the obviously goal, nevertheless, remember there is risk in not separating expenses. To minimize your personal risk keep the expenses separated and documented.
Hopefully you can keep that preferred seating assignment too!