Linda Artesani of Artesani Accounting warns solo lawyers against mixing personal and business expenses on one credit card. The IRS disallows commingled expenses, which can get deductions denied and trigger costly audits. She recommends a separate business card or a second personal card labeled for business only.
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Hi there. Linda Artesani, Artesani Accounting. This week we're going to talk about commingling and expenses. Basically, if you are a solo practitioner, solo lawyer, and you're using your personal credit card for business expenses, it's actually a practice that's frowned upon. The IRS does not like it when you mix business and personal expenses. And as a bookkeeper or an accountant, it actually makes a pretty messy process for us too. We have to go through every single transaction. There can be quite a few on a monthly personal bank account records, and then go through on a credit card and go through them all to make sure that these are personal, these are business. And sometimes we just flat out don't know. And if it's travel or meals related, we don't know if they're transactions that are business or not. And you could actually run the risk of missing an expense with this commingling. We have had— I've had sat through some— I've sat through some audits, and I can tell you that I've watched things that were actually business expenses be denied because they were mixed in with the personal, and the IRS just doesn't like when you commingle. So if you are a business, if you are an attorney running a law firm and you're using one credit card for personal and business, why not get a second card? And I've had this argument where somebody will say, well, I can't, my business is too new, I can't get a card. Just get a second personal card and only use it for business transactions. That would be a better practice than mixing them in one. If you can get a business card, highly recommend doing that as well. But if that's a hurdle you haven't quite, you're not quite able to reach, get that second personal card. And then I even have put a label on it. This is, you know, if you have a couple of Southwest credit cards, maybe one is for personal, one's for business. Just put like a little label on it saying personal and business. So when you're out and about taking and charging things, you'll make sure you grab the right card. So I hope this is helpful. I've seen some audits where actual business expenses were disallowed because the auditor said, nope, it's too messy. I'm not positive. Even though we provided copies of the actual bills themselves, the auditor disallowed them and the client lost quite a bit of money off of expenses that they rightfully should have received. You're just at the hands of the auditor and you just don't want to even put your business in that place. If you have everything being done perfectly, you're going to set yourself up for success. So the next time you get that haircut on the way in to go to court, it's not deductible. And if you're really curious about this or curious about how to put things in the right accounts, and this is something that you probably need a little help with because you're struggling with your firm's finances, your law firm finances, just reach out. We will be more than happy to help you at our firm and set you up with clean books that make the IRS happy, which will make you happy. And we have tips that we can help you with to help maybe lower some of your chances of having audits and also maybe save some tax dollars because we do this work all the time. Thank you for watching. If this was helpful to you, please hit the subscribe button. I have a couple links in the blog post itself for some of the tools that we like to use that we suggest to the bigger firms If they have multiple people that are reimbursed for expenses, how do you do that? I like Truly, I like Relay Bank, and I also like Divvy. So those are the 3 that we use, and I'll have some links in the notes on the blog post that you can go and just grab those and get your firm set up to properly track your expenses. Thank you. Have a great day. Bye.
