used personal credit card for business debt...now what?

[AceTonePro]

Hello,

I recently launched a Recording Studio in Connecticut. While going through the process of getting together equipment I needed, I had to use my personal credit card to cover some immediate business expenses. My plan now is to sign up for a business credit card so that I can keep the business expenses separate going forward, but I need to figure out how to pay the debt on the personal credit card now that I am up and running in a way that doesn't screw up my taxes. I also work a full time job, which is the majority of my income (at least for the next few years).

I am an LLC. I've kept track right to the penny of every single purchase I made for the business on my personal credit card. Business is a single member LLC using my SSN. I'm also the sole credit card holder. I would like to do one of the following things, but I'm not sure which is best.

Option 1) Since I plan on getting a business credit card, I was hoping to do a balance transfer of the exact amount I spent on business expenses. I could then take advantage of 0% promos and so on, as well as making my payments cut and dry (business bank account to business credit card). My concern here is whether or not this effects my tax situation at all. I have every receipt and statement showing balances. My concern here is paper trail I think...

Option 2) Write payment checks from my business account to my existing credit card not exceeding the balance I used for business purposes. Can I do that or will it look strange making a payment to a personal credit card from a business account.

Option 3) Write myself checks from the business account (so that I'm taking a pay check) and deposit into my personal account. Then use my personal account to make a payment to the personal credit card. This is a lot more steps then I want to take, but if I have to do it this way, I will.

Essentially, I would like to know which of these methods is OK for me to use. If I've documented all the expenses, does it really matter which one I use? Any advice I can get would be greatly appreciated. Thanks!

-Matt

[tallen]

My advice? Try to avoid carrying debt on a credit card -- pay off that balance asap! (get a loan from another, less expensive, source, if necessary)

As far as taxes go, especially since you are a single-member LLC that will be treated as a sole proprietorship in the eyes of the IRS, it's mainly just a matter of book-keeping, the particular details of the money flow-path are less important at this stage.

Option 4: pay off your personal credit card from your personal funds, and record your expenditure on the equipment in your books as an investment in your business.

[jamesray50]

Congratulations on your new business. For the business transactions paid with your personal credit card record each business transaction as a debit to either an expense or fixed asset and credit a shareholder / member loan account.

The debit to an expense or fixed asset will increase your expenses and / or equity in the business. The debit to a loan account is a liability account, this will show that the business owes you money.

To make a payment to your personal credit card write a check from the business account, debit the loan account for the amount of business and the balance (if any) to an equity account called Member's Draw and credit your checking account.

Or, to transfer the balance to the business account credit card, create a credit card account (a liability) and do a journal entry to debit the loan account and credit the business card.

[Tyson]

As tallen said, in the eyes of the IRS you are a sole proprietorship (unless you registered otherwise). As a sole proprietorship your business' income is also your personal income and your business' expenses are also your personal (tax-deductible) expenses. Thus you don't need to do any of those things. Its more a bookkeeping matter.

However I do recommend moving forward that you keep your personal things and business things as separate as possible to make handling bookkeeping and legal matters easier to manage.

And this:


My advice? Try to avoid carrying debt on a credit card -- pay off that balance asap! (get a loan from another, less expensive, source, if necessary)

[AceTonePro]

Thank you all so much for your advice! I got into this business because I love working with artists and musicians, and I'm still learning the ropes. You all provided a lot of insight that is very much appreciated. I have taken steps to ensure business and personal will be separate going forward, and now that I've got some income coming in, I should be able to go cash from her on.

You guys are great, thanks again!

[jamesray50]

I agree! This is the best forum for business.

[Leo]

In our business (partnership of husband-wife), my wife confuses the business credit card with our personal all the time (they are both blue), so in many cases, I see a credit card charge on my personal account that is business related.

What I do? I do a journal entry for the supply expense against our Owner's equity account, then I photograph the receipt and attach it to the journal entry (Quickbooks allows you to attach files to transactions).

Supply expense gets a debit, owner's equity gets a credit. Someday in the future we'll pay ourselves back.