|by Jason Steele|
A reader asks:
I am a self-employed business owner with one employee, me. I would like to take advantage of the cash back credit cards for all of my purchases, but I also have to keep in mind the onus of having to keep business expenses separate from personal expenses and not having time to watch what categories are getting the highest return at the moment. What would be your suggestion in what cash back cards would work best for my situation? Or should I maybe try to get 2 different account number cards with the best cash back program and use one for personal and one for business?
This is an excellent question Sharon, and many like myself are in the same position. First, the premise of your question is that you are trying to maximize the rewards returned from you credit card spending. This is a great idea, but of course, only if you are always paying your credit card statements in full and on time. To do otherwise will incur interest charges that are far more costly than the value of any rewards. That said, the next thing you have to do is to decide what kind of rewards you are trying to realize. You seemed focused on cash back, which is better than points or miles for most people, but not everyone.
Within the market for cash back cards, I also share your dislike of tracking various reward return rates for different merchant categories. These kinds of cards only make sense when your business expenses are dominated by a single category that you can receive more than a 2% bonus for. For the vast majority of cash back cards, the standard is 1% cash back, with 2% being the highest rate of return I have ever seen on all merchant categories, outside of a limited promotional period. Currently, Capital One is offering their Business No Hassle Cash Premier card. According to their web site, you can earn 2% cash back on all purchases with no limit.
Using Multiple Cards For Home And Business
Many people believe that there is some inherent difference between a personal card and a business card. In fact, there is nothing stopping consumers from using business cards and businesses from using personal cards. For the longest time, there was actually no difference between the two products. Today, there is a slight difference in that only consumer cards are eligible for many of the protections in the CARD Act of 2009. According to the Federal Reserve’s web site, “Credit cards issued primarily for business or commercial purposes generally are not governed by the consumer protections in the Truth in Lending Act or the amendments to that act in the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. ”
Otherwise, there are two reasons for a sole proprietor to have multiple cards. The first is to separate expenses for tax purposes. One could merely highlight charges on their credit cards and designate them to business or personal, but that is a time consuming task. The thing is that a sole proprietor does not really need dedicated business cards to do that, just more than one. The other reason for having a separate business card is if you want to separate interest payments between personal and business. It is easy to imagine a very responsible business owner that pays his or her personal balance in full, but bust carry a balance on a business account in order to charge necessary expenses for customer work where payment is not received in time to pay off the balance in full.In this case, however, you should always be looking for the card with the lowest interest rate, not the highest cash back returns.
You would be well served by a 2% cash back business card like the Capital One product, as well as a consumer card for your personal expenses. Fidelity Investments currently offers a 2% cash back card, and the Capital One Venture Rewards card is also returning 2% in the form of a statement credit against any travel related expense. It is great to be your own boss, and it sounds like you are on your way to making wise decisions about you credit card use.