How to Use Credit Cards as a Freelancer
Every year it’s the same thing: I go through my box of receipts, separate work-related items from the personal, and then give it to my accountant to sort out for my taxes.
This year, I made the executive decision—as a freelancer, I am both CEO and employee—to put all work-related expenses on my credit card. That way, I can download my statements and send them to my accountant.
I have one credit card, which doubles as my personal and business card, which got me thinking: When is it time to consider getting a separate card for business expenses? As a sole proprietor versus an incorporated company, do I need another credit card?
“If you only have a handful of freelance expenses every now and then, having an entirely separate credit card may not make sense,” says Shannon Lee Simmons, financial planner and owner of the New School of Finance. “Having another credit card could affect your credit rating a little, but if you only have five or six expenses a month, then just use the one card.”
She suggests getting a separate card if you have more than 40–50 freelance-related expenses a month. “When it gets to the point when you’re constantly going back and forth trying to pull out information and you’re creating more work for yourself, then separate cards can be a time-saving efficiency.”
So what is considered a business expense? It varies but it includes:
- Subscriptions to publications related to your business
- Conference costs
- Travel costs like flights, hotels, and car mileage
- Marketing and promotional materials like business cards, flyers, notebooks, and pens
- Internet, computer and computer programs like Adobe Suite or Dropbox
- Even coffee if it’s a business-related meeting.
If you’re not sure what counts as a business expense, talk to an accountant or check with the Canadian Revenue Agency.
Benefits
A credit card for business does have certain benefits. There is the ease of tracking your expenses for the year. If you tie it to a budget program like Wave or Freshbooks, you can see your expenses versus your income and whether you’re bringing more than you’re spending.
It can also help you keep track of your GST/PST/HST and how much you have to pay either quarterly or yearly. That way, you’re not caught off-guard and have the cash on hand.
Points
Simmons says that if you have minimal freelance expenses, keeping one card to get the maximum points is a great strategy. If you decide on getting a separate credit card, how to you choose which card to get?
“There’s no right or wrong,” says Simmons. “My best advice is to do your research because there are so many products out there.” She recommends looking at how much those 40 or 50 transactions add up to and how that translates to points. “So many points are personal, like travel or shopping, so you should ask yourself how often you’re going to use the card and the points.”
You may choose a cash-back card that lets you put that money back into your business or you may choose a travel rewards card if you travel for your company. Whatever you choose, make sure you can pay it off each month and you’re not adding interest to your expenses.
Flickr: Jeremy Levine