Do you use a corporate or other business credit card to track some of your business expenses?
You might use a business credit card for travel, entertainment, vehicle expenses, office supplies, and other business expenses. Do you know what the big danger is with this method?
You likely use the credit card at will. The credit card company likely mails the monthly statement directly to the business, where you pay it in full without the submission of a business expense report.
The IRS says that personal expenses paid on behalf of owners are taxable fringe benefits and, if you operate as a corporation, included in your wages. Note that when you operate as a corporation you have a bigger problem than if you operate as a proprietor because of the payroll inclusion requirement.
In the corporate situation, if the corporation does not require you to substantiate the business expenses charged to the corporate credit card, the expenses on the credit card are paid under a non-accountable plan and the entire reimbursement is taxable to you—and becomes wages to you for employment tax purposes. This is a big problem. ... Log in to view full article.
