Can I Put This Through My Business?

“But I bought it while I was working...” doesn’t automatically make it a business expense.

If I had a dollar for every time a business owner asked me:

“Can I put this through my business?”

Well... I’d probably have another business. 😂

It’s one of the most common questions I get, and it’s a good question to ask.

Business owners spend money all day long. You’re stopping for gas, ordering supplies, grabbing lunch, buying something at Home Depot, paying for your phone, replacing equipment, ordering things online and occasionally buying something that falls somewhere in the gray area between business and personal.

But there’s an important distinction:

Paying for something with your business account doesn’t automatically make it a business expense.

And buying something while you’re working doesn’t necessarily make it one either.

Start With One Simple Question

When you're unsure about a purchase, start here:

Why did my business need this?

That sounds almost too simple, but it usually gets us headed in the right direction.

If you're a contractor and you buy lumber for a customer's project, the business purpose is pretty obvious.

If you buy accounting software to keep your business records, also pretty obvious.

If you buy tools that you use in your trade, we're getting somewhere.

But what if you stop for lunch while you're working?

Buy clothes you can also wear outside of work?

Purchase something for your house while you're already at Home Depot buying job materials?

Fill up a vehicle that's used for both business and personal driving?

Now we need more information.

The receipt alone doesn't tell me the whole story.

“I Used My Business Card” Isn't the Test

This is where business owners sometimes get tripped up.

Your business debit or credit card is simply how you paid for something.

It doesn't determine what the purchase was.

If you accidentally use the company card to buy groceries, QuickBooks doesn't magically turn groceries into Office Supplies.

And please don't pick a random expense category just because QuickBooks wants you to choose something. 😂

Tell me what happened.

Personal purchases paid by the business can often be recorded appropriately as an owner-related transaction rather than pretending they're business expenses. Exactly how they're handled can depend on how the business is structured and the circumstances.

That's another reason I want to know what something actually was.

The Opposite Can Be True Too

Here's something business owners don't always realize:

Using your personal money doesn't automatically make a legitimate business expense personal.

Maybe you were at the store and accidentally used your personal card.

Maybe you paid for a business subscription personally.

Maybe you bought materials before the business bank account was open.

Don't automatically leave those purchases out of your bookkeeping.

Tell your bookkeeper.

There may be a proper way to record a legitimate business expense that you paid personally.

Some Purchases Need More Than a Yes or No

Not every transaction fits neatly into:

BUSINESS ✓

or

PERSONAL ✗

Vehicles are a good example.

So are cell phones, internet service, travel, meals, home-office expenses and items with both business and personal use.

There can be specific tax rules governing whether and how those costs are deductible.

That's where I want to make an important distinction.

I'm your bookkeeper. I'm not going to make up tax rules because we'd really like something to be deductible.

My job is to help make sure we understand what the transaction was and record it appropriately in your books.

When the deductibility or tax treatment isn't clear, that's a question we may need to confirm with your tax professional.

Good bookkeeping gives your tax professional good information to work with.

Please Give Me More Than “Amazon”

Here's another one I see all the time.

AMAZON: $287.43

Okay.

What did we buy? 😂

Amazon could be:

Office supplies.

Tools.

A computer monitor.

Cleaning supplies.

Materials for a job.

Birthday presents for your kids.

Dog food.

Or all of the above on the same order.

The merchant name isn't always enough for me to determine what belongs in your books.

The same thing happens with stores like Costco, Walmart, Target, Lowe's and Home Depot.

If the purchase isn't obvious, save the receipt and give me a little information.

You don't have to write me a novel.

Something as simple as:

“Materials for Smith job.”

“New drill for work.”

“Personal. Used company card by mistake.”

is incredibly helpful.

Mixing Business and Personal Creates More Work

Will your books burst into flames because you accidentally bought something personal with your business card?

No.

But when it happens constantly, it creates unnecessary bookkeeping work and makes your financial reports harder to understand.

The cleaner approach is simple:

Use business accounts for business purchases and personal accounts for personal purchases whenever possible.

Separate business bank account.

Separate business credit card.

Save your receipts.

And when you accidentally cross the streams, tell me what happened instead of trying to hide it in Office Supplies.

I promise I've seen worse. 😂

Your Financial Reports Should Tell the Truth

This is the bigger reason I care about all of this.

If we classify every questionable purchase as a business expense just because it came out of the business checking account, your Profit & Loss isn't showing you what actually happened.

You might think your business costs more to operate than it really does.

Your profit may look lower.

Certain expense categories may look unusually high.

And ultimately, we're giving your tax professional information that may need to be untangled later.

Good bookkeeping isn't about making every transaction deductible.

It's about accurately recording what happened.

Then your tax professional can make the appropriate tax decisions based on accurate records.

When You're Not Sure, Ask

You don't need to memorize every accounting or tax rule.

That's why you have people helping you.

If you're looking at a purchase thinking:

“Is this business or personal?”

Ask me.

Tell me what you bought and why.

Sometimes the answer will be easy.

Sometimes I'll need a little more information.

And sometimes I'll tell you:

“That's a question we need to run by your tax professional.”

I'd much rather have you ask than guess.

And please don't choose “Miscellaneous Expense” just because you don't know what else to do with it. 😂

The Bottom Line

The question isn't simply:

“Did my business pay for this?”

The better question is:

“What was the business purpose of this expense?”

Keep business and personal spending separate whenever you can. Save documentation for your business purchases. Give your bookkeeper enough information to understand unusual transactions.

And when you're not sure?

Just ask.

That's part of what I'm here for.

Have a Bookkeeping Question You Keep Googling?

You don't have to figure everything out before you call me.

Whether your books need ongoing attention, you're trying to clean up a mess, or you simply need someone who will actually answer your questions, let's talk about what's going on with your business.

Bookkeeping Stress? Call Jes.

Bookkeeping by Jes
Small Businesses • Contractors • Trades

Call or Text: (916) 730-7054
Book a FREE Call: CallJes.com/Get-Started

This article provides general bookkeeping information and is not tax or legal advice. The deductibility and tax treatment of expenses can depend on your specific circumstances. Consult your qualified tax professional when appropriate.

Category: Bookkeeping Basics
Secondary category: Small Business Tips