Can one LLC pay the expenses of another LLC?

It can physically make the payment, but the paying LLC generally cannot deduct another company's expenses. Section 162 covers expenses of carrying on a trade or business, and courts have applied it to deny deductions for covering a related company's costs, including a case where a contract required the payment. If the cost is genuinely shared, split it under a written allocation. If it is a loan, paper it as one. If it is neither, route the cash through the owner as a distribution and a contribution, so each step has a name in each company's books.

Can one LLC fund another LLC?

Yes, through either of two clean structures. One is an intercompany loan with a promissory note, interest at or above the applicable federal rate, and a repayment schedule. The other is routing the money through the owner: a distribution to you from the company that has the cash, then a capital contribution into the one that needs it. Both leave a paper trail that explains the balance. A direct transfer with no classification is the version that causes problems later.

Is transferring money between two LLCs I own a taxable event?

If both LLCs are single-member companies that have not elected corporate treatment, no. Each one is disregarded for federal income tax purposes and treated like a branch or division of you, so the transfer happens inside one taxpayer. If either LLC is taxed as a partnership, distributions and contributions are generally not taxed either, with the partner's basis as the main limit. The tax answer does not settle the records question: the transfer should still appear in both companies' books as a documented step, because keeping the companies separate is a liability question that runs on its own rules.

Does one LLC need to send a 1099 to another LLC?

Only when the payment is for services and crosses the reporting threshold, which is $2,000 for payments made after December 31, 2025. If the receiving LLC is taxed as a C corporation or S corporation, payments to it are generally exempt from Form 1099-NEC, with exceptions such as legal services. Covering another company's expenses or funding it through a loan or contribution is not a service payment, so those transfers do not generate the form.

Should I just run both businesses under one LLC instead?

Sometimes that is the simpler answer, and it removes the intercompany payment question entirely, at the cost of putting both operations inside one liability boundary. That decision has its own tradeoffs, and our guide on running multiple businesses under one LLC walks through when one container is enough and when it is not.

Can One LLC Pay Expenses for Another LLC? The Check Clears, the Deduction Usually Does Not

Short answer

The payment itself will go through, and that is exactly the trap. Under section 162 of the tax code, a business deducts expenses of carrying on its own trade or business, and courts have applied that line to deny a parent company's deduction for covering its subsidiary's costs. So the practical question is not whether one LLC can pay, it is which of three routes you use so the money movement has a name: a written cost allocation between the two companies, a documented intercompany loan, or a transfer routed through you as the owner. Each route has different paperwork and different tax treatment, and the worst option is the default one, where one LLC quietly pays and nobody records what the payment was.

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Key takeaways

One LLC paying another LLC's expenses generally does not create a deduction for the LLC that paid. Section 162 allows deductions for expenses of carrying on a trade or business, and in Interstate Transit Lines v. Commissioner (1943) the Supreme Court denied a parent company's deduction for covering its wholly owned subsidiary's operating deficit, even though a contract required the payment.
For businesses under common ownership, section 482 says the IRS may distribute, apportion, or allocate income and deductions between them to clearly reflect income. The statute's verb is may. It describes authority, and the way to stay out of its reach is pricing and records that match what unrelated companies would do.
Three routes give the payment a name: a written cost allocation for genuinely shared expenses, an intercompany loan documented with a note and interest, or a distribution to the owner followed by a contribution into the other LLC.
If both LLCs are single-member companies you own and both are disregarded for federal income tax purposes, moving money between them is not a federal income tax event, because the regulation treats each one in the same manner as a sole proprietorship, branch, or division of the owner. The liability side is a different axis: separate records still decide whether the companies look separate to a court.
When the payment is really for services one LLC performed for the other, it is income to the LLC that did the work, a business expense to the one that paid, and, for payments made after December 31, 2025, a Form 1099-NEC obligation once payments to one payee reach $2,000 in a year.

Before you start

This guide covers federal income tax treatment and the recordkeeping side. It assumes both LLCs are yours, fully or mostly. Payments between unrelated LLCs are ordinary vendor transactions and do not raise the questions covered here.
How your LLCs are taxed changes which section of this guide applies to you. A single-member LLC that has not elected corporate treatment is disregarded for federal income tax purposes, a multi-member LLC is taxed as a partnership by default, and either kind can elect to be taxed as a corporation. If you are not sure which yours is, that is worth pinning down with your CPA before you classify a single transfer.
This guide is about paying expenses. If your actual question is whether one LLC can own another, or whether you need a second LLC at all, those are different decisions. Our holding company guide covers the first question, and our guide on running multiple businesses under one LLC covers the second.

Who this is for

Owners running two or more LLCs where one company keeps paying bills that belong to the other, usually because one entity holds the credit card or the bank balance.
Anyone splitting shared costs, rent, software seats, or a part-time assistant across sister companies and wondering what the paperwork should look like.
Bookkeepers who inherited a pile of intercompany payments labeled 'transfer' and need a clean classification for each one.

The payment is never the hard part. Your second LLC's software renewal comes due, the first LLC's card is the one saved at checkout, and the charge goes through. The vendor does not care which of your companies paid. The bank does not care either.

The two parties who eventually care are the IRS and, if the structure is ever tested, a court. The IRS cares because deductions belong to the business that the expense belongs to, and a payment that crossed company lines without paperwork is sitting in the wrong company's books. A court cares because the whole point of keeping two LLCs is that they are separate, and casual bill-paying between them is evidence that they are not.

When we read the search page for this question in August 2026, the answers ran in both directions: forum threads said to avoid it entirely, and accounting threads said it is fine if you record it properly. Both camps are half right. The payment is fixable, but only if you give it a name. This guide walks through the deduction problem first, then the three routes that do exactly that: a cost allocation, a loan, or a trip through the owner.

The check clears. The deduction is the problem.

Section 162 of the tax code is the sentence this whole question hangs from: it allows 'all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.' Courts have long read that line to mean the taxpayer's own trade or business. Paying a bill does not move the underlying expense into the payer's business, and covering another company's costs is generally not deductible for the company that wrote the check.

The case worth knowing is Interstate Transit Lines v. Commissioner, decided by the Supreme Court in 1943. A bus company covered the operating deficit of its wholly owned subsidiary, and a contract obligated it to do so. The Court denied the parent's deduction anyway. The expense of running the subsidiary's business belonged to the subsidiary, and a contractual promise to pay it did not convert it into the parent's expense.

Notice what that means for the casual version, the one this guide opened with. If a contract requiring the payment was not enough in 1943, an unrecorded card swipe is not a stronger position. When LLC A pays LLC B's expenses directly, the likely outcome is the worst of both worlds: LLC A gets no deduction because the expense is not its own, and the books of both companies now contain a transaction with no explanation.

There is a second statute in the background for companies under common ownership. Section 482 gives the IRS authority over exactly this situation: where two or more businesses are 'owned or controlled directly or indirectly by the same interests,' the IRS 'may distribute, apportion, or allocate gross income, deductions, credits, or allowances' between them to prevent tax evasion or to clearly reflect each company's income. The verb is may. It is authority, not a prediction, and the way to make it uninteresting is for the numbers between your companies to look like numbers between strangers.

The 1943 case, in one sentence

In Interstate Transit Lines v. Commissioner, 319 U.S. 590 (1943), the Supreme Court denied a parent company's deduction for covering its wholly owned subsidiary's operating deficit, even though a contract required the payment. The expense belonged to the business that generated it, and it stayed there.

Route one: shared costs, split by a written allocation

Some expenses genuinely belong to both companies. Two LLCs sharing one office suite, one project management subscription, or one part-time assistant have a real allocation question, not a mislabeled payment. For these, the clean structure is simple: decide how the cost splits, write the method down, and have each company pay, or reimburse, its own share.

There is no IRS form for an allocation agreement, and we did not find a statute or IRS page that prescribes documentation for cost sharing between small related companies. What practice has settled on is a short written allocation agreement between the two LLCs: which costs are shared, what the split is, and what the split is based on. The method matters more than the percentages. Square footage for rent, seat count for software, and hours for shared staff are methods you can defend with a lease, an invoice, and a time log. A round number chosen because one company had more cash that month is not a method.

Consistency is the other half. An allocation that changes every quarter to land deductions in whichever company earned more looks less like cost sharing and more like the situation section 482 was written for. Pick the method, apply it every month, and let each company's share land on its own books, either by paying the vendor separately or by reimbursing the company that fronted the bill, with the reimbursement recorded against the same expense.

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Route two: an intercompany loan, papered like a real one

Sometimes the honest description of the payment is that one company is lending the other money. LLC A has the cash, LLC B has the expenses, and the plan is that LLC B pays it back. That is a loan, and the difference between a loan and a problem is whether it is papered like one.

A bona fide loan is not income to the borrower and not an expense to the lender, which is why classification matters: it is the one route where money crosses company lines with no tax event at all, provided the loan is real. What helps establish that it is real is the same paperwork any lender would produce: a promissory note, a stated interest rate, a repayment schedule, and payments that actually happen. A balance labeled 'due from sister company' that only ever grows tells the opposite story.

Interest is the detail owners skip, and it has its own statute. Section 7872 covers below-market loans, and where it applies, it treats the interest you did not charge as if it had been transferred to the borrower and paid back to the lender as interest. The statute reaches listed categories of loans, including arrangements structured to avoid tax, so it is not that every zero-interest loan between your LLCs automatically triggers it. The simpler position is to not test the question: charge at least the applicable federal rate, the minimum rate the IRS publishes monthly as revenue rulings, and the loan stays out of below-market territory entirely.

Where the minimum rate comes from

The applicable federal rate, or AFR, is published by the IRS every month as a revenue ruling, with different rates for short-, mid-, and long-term loans. The current tables are on the IRS applicable federal rates page. The rates move monthly, which is why a note should name its own rate. A guide like this one would only be quoting a number that goes stale.

Route three: through the owner

The third route does not move money between the LLCs at all. LLC A distributes cash to you, the owner, and you contribute it into LLC B. Two steps, each one a normal event that bookkeeping already has names for: a distribution out of one company, a capital contribution into the other.

If both LLCs are single-member companies you own, and neither has elected corporate treatment, the federal income tax answer is quiet. The regulation says a single-owner business entity that is not a corporation 'is disregarded as an entity separate from its owner,' and its activities are treated 'in the same manner as a sole proprietorship, branch, or division of the owner.' For federal income tax purposes, both companies already report on your return, so moving cash from one to the other is not a taxable event. Employment taxes and certain excise taxes run on separate rules that do treat the LLC as its own entity, but the income tax side of a transfer between your two disregarded companies is an entry, not an event.

If either LLC is taxed as a partnership, the same two steps go through the partnership rules: distributions are generally not taxed to the partner except to the extent cash exceeds the partner's basis, and contributions of property to a partnership are generally not taxed either. The word generally is carrying weight in both halves of that sentence. Basis is the limit on the distribution side, the rules have carve-outs, and a transfer of anything more exotic than cash is a conversation to have with your CPA before the money moves, not after.

One warning applies to this route with force: the tax answer and the liability answer are different questions. The fact that the IRS sees one taxpayer does not mean a court will. Two LLCs that share a bank balance in practice are two LLCs whose separateness is hard to demonstrate later, and demonstrating separateness is the entire job. Route the money as two recorded steps with a paper trail, not as one habit. What courts actually examine when they decide whether related companies were kept separate is covered in our holding company guide, which walks through the factors from the leading alter ego opinions.

When the payment is actually for services

Everything above assumes one company is covering costs that belong to the other. A different situation looks identical at the bank: one LLC pays the other because the other did real work for it. Your design LLC builds the website for your consulting LLC, and money moves.

That is not expense-covering, it is revenue. The payment is income to the LLC that performed the work and, if the price is what an unrelated client would have paid, an ordinary business expense to the one that paid for it. The arm's length price is what keeps it out of section 482 territory: a fee that exists mainly to move profit from one company into the other is the exact pattern the statute lets the IRS rearrange.

Service payments also bring a reporting form. For payments made after December 31, 2025, a business that pays any single payee $2,000 or more in a calendar year for services files a Form 1099-NEC, a threshold the 2025 tax law raised from $600, with inflation adjustments beginning after 2026. The corporation exception applies here: payments to a corporation, including an LLC that elected C corp or S corp treatment, are generally exempt from the form, though the exemption has carve-outs, legal services being the well-known one. Whether a form is due, then, depends on how the receiving LLC is taxed, which is one more reason the W-9 you collect from your own sister company is not a formality.

Classification	What it is	Federal income tax treatment	The paperwork
Written cost allocation	Genuinely shared expenses split between the companies by a stated method	Each company deducts its own share of its own expense	A short allocation agreement, a defensible method applied consistently, reimbursements recorded against the expense
Intercompany loan	One company lends the other money and is paid back	No income to the borrower, no expense to the lender, while the loan is bona fide	Promissory note, stated interest at or above the AFR, repayment schedule, payments that actually happen
Through the owner	A distribution to you, then a contribution into the other LLC	Not a federal income tax event between disregarded LLCs with the same owner; generally tax-free under the partnership rules, with basis as the limit	Two recorded steps in each company's books, not a running informal balance
Payment for services	One LLC pays the other for real work at a real price	Income to the company that did the work, a deductible expense to the payer	An invoice, an arm's length price, and a 1099-NEC once payments reach $2,000 in a year

The three routes, plus the payment that was never expense-covering to begin with: four clean classifications for money moving between your LLCs. The one missing from the table is the default, a direct payment with no classification, because it is the one that produces no deduction and bad evidence.

Where save office fits

This guide is about the money side of keeping two companies separate, and save office sits on the identity side of the same job. Each LLC with its own commercial business address, its own mail trail, and its own records is a company that looks separate in the ways that get examined, and a real commercial address for each entity is one of the simpler pieces of that evidence to put in place.

Separate does not have to mean scattered. Two companies, two sets of records, one consistent method: the discipline this guide applies to payments is the same one our guide on running multiple LLCs at the same business address applies to the address question, including when sharing one address is fine and what to keep distinct while doing it.