After doing my taxes this year, I’m firmly of the opinion that every freelancer needs a debit or credit card just for business expenses. A separate checking account for your freelancing business — and the debit card that comes with it — is ideal, but for freelancers who aren’t ready to do that, having a credit card that is used exclusively for office supplies, business lunches and all those other expenses you can write off on your taxes can pay off.
Get the Paperwork Off Your Desk
When I was still using the same piece of plastic for paying both personal and business expenses, I had to sort through receipts and bank statements in order to figure out just what was actually a business expense. I swore uphill and down that I would record business expenses every day, or even every month, but I always wound up with a big pile of receipts each April.
I know I missed some expenses: I had a whole stack of receipts from Starbucks, my favorite place to meet clients. But I also go to Starbucks when I just need some coffee, making it necessary to guess which trips had actually been business expenses.
These days, the only thing I have to remember is which card to use when I’m meeting a client. If I’m at a business lunch, I pull out my business card. If I’m out to dinner with family, I pull out my personal card. Because I use a debit card for each, I just toss each bank statement in the appropriate folder — come tax time, the bank’s already provided me with convenient totals to do my taxes. I also route incoming payments through the same bank account, making my income easier to calculate as well.
The Logistics of Extra Credit
If you’re freelancing part-time or otherwise don’t want the hassle of maintaining two bank accounts, the easy alternative is to get a credit card just for your business expenses. However, if you choose to go the credit route, there are a few extra things to remember:
- Pay off your balance every month — you can’t write off credit card interest on your taxes, even if it was for office supplies.
- The card will most likely be in your name, even if it’s only used for business expenses. That means it can affect your personal credit score.
- Because of the current economic situation, it’s getting harder to get a credit card.
- There are personal considerations when opening a new credit card — for instance, it’s generally a bad idea just before you try to get a mortgage or other loan.
None of that means that having a credit card for your business is a bad thing. It just means that exercising a little caution is in order. Unless you’re expecting to need a huge credit limit, your bank is probably the easiest place to get a new credit card. They may not offer the best interest rate — shopping around is entirely an option — but as long as you pay off the balance completely each month, it’s likely to be the most convenient.
Record-keeping: Paper and Plastic
It’s worth hanging on to receipts even after you’ve made the switch to one card for all your expenses, if only to substantiate your spending in the event of an audit. Receipts can also help clear up just what company a particular charge on your account went to, which is an important consideration when many companies don’t have the clearest names. Lastly, reconciling your receipts and statements is just as important for your freelancing as it is for your personal expenses: you can catch even small problems and deal with them just by going over your statement once a month.