Yes, one LLC can pay another LLC, and it happens every day for rent, supplies, subcontracted work, professional services, and inventory. The payment itself is ordinary. What matters is the paperwork around it: a W-9 collected before you pay, a written agreement, correct 1099 reporting at year-end, and records clean enough to survive an audit or a lawsuit. Handled properly, these payments are fully deductible and pose no threat to your liability shield. Handled sloppily, especially between LLCs that share owners, they invite IRS adjustments and can expose one company’s assets to claims against the other.
Get a W-9 Before You Send Money
Ask the other LLC for a completed Form W-9 before the first payment goes out. The W-9 gives you the payee’s taxpayer identification number and, just as important, tells you how that LLC is taxed: as a partnership, a C corporation, an S corporation, or a disregarded entity.1Internal Revenue Service. Instructions for the Requester of Form W-9 That classification decides whether you’ll owe a 1099 in January, so collecting it upfront saves you a scramble later.
If the other LLC won’t provide a W-9 or gives you a TIN that doesn’t match IRS records, you may be required to withhold a percentage of every payment and send it to the IRS. This is backup withholding, and it triggers automatically when a payee fails to furnish a valid TIN.1Internal Revenue Service. Instructions for the Requester of Form W-9 Make the W-9 part of your standard vendor intake and you’ll rarely deal with it again.
Put the Terms in Writing
Even a short contract protects both LLCs. At a minimum, the agreement should describe what’s being provided, the price, payment deadlines, and how disputes get handled. Spell out late-payment consequences (an interest rate or a flat fee) so there’s nothing to argue about later. Many business contracts also add an arbitration or mediation clause, which keeps disagreements out of court.
For transactions involving physical goods, the Uniform Commercial Code applies in every state and covers contract formation, delivery, and remedies for breach.2Uniform Law Commission. Uniform Commercial Code The UCC’s sales rules apply to goods, not services. If your LLC is paying another LLC for consulting, design, or other pure services, common-law contract rules govern and those vary more from state to state. For mixed deals, courts ask which component dominates the transaction’s purpose. A detailed written agreement matters most in those gray areas.
Deducting the Payment
Payments your LLC makes to another LLC for goods or services used in your business are generally deductible as ordinary and necessary business expenses.3Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses Inventory, rent, subcontractor fees, professional services, software subscriptions all qualify as long as they’re connected to running your business and the amount is reasonable.
The catch is documentation. Keep every invoice, receipt, and proof of payment, and match each one to the underlying contract or purchase order. Payments between LLCs without a paper trail look suspicious to an auditor even when they’re entirely legitimate.
When You Need to File a 1099-NEC
If your LLC pays another LLC $600 or more during the year for services, you’ll generally need to file Form 1099-NEC reporting that payment.4Internal Revenue Service. Reporting Payments to Independent Contractors The form goes to both the IRS and the recipient by January 31 of the following year.5Internal Revenue Service. 2026 Publication 1099
The exception that catches people out: you generally don’t file a 1099-NEC for payments to an LLC taxed as a C corporation or S corporation. That’s why the W-9 matters so much. Without it, you can’t tell whether the LLC you’re paying is a partnership (1099 required) or a corporation (usually not). Payments for legal services are the main carve-out from the corporate exemption, and they get reported on a 1099 regardless of how the law firm is organized.6Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
On the other side of the transaction, the receiving LLC reports the income on whatever return matches its tax election: Schedule C for a single-member LLC, Form 1065 with K-1s for a partnership, or a corporate return for a corporate-taxed LLC.
When Both LLCs Share the Same Owner
If you own both LLCs, or the same group owns both, every payment between them gets extra scrutiny. Federal law lets the IRS reallocate income, deductions, and credits between commonly controlled businesses when the pricing doesn’t reflect what unrelated parties would have charged each other.7Office of the Law Revision Counsel. 26 USC 482 This is the arm’s-length standard, and it’s the fastest route to an audit adjustment.
The idea is simple. If LLC A pays LLC B $500 a month for office space that would rent for $2,000 on the open market, the IRS can treat the transaction as if it happened at $2,000 and reallocate the income accordingly.8Internal Revenue Service. Comparison of the Arms Length Standard with Other Valuation Approaches Inflating payments to shift income the other direction raises the same flag. Document why the price matches market rates: pull comparable quotes, keep them in the file, and treat each transaction as if an examiner will look at it later.
The liability side is just as important. Courts look at whether commonly owned LLCs actually operate independently. If one person runs both, funds move back and forth without agreements, or both use the same bank account, a court can treat the two entities as a single operation and let a lawsuit against one reach the other’s assets. Separate bank accounts, written agreements at market prices, and disciplined bookkeeping are what keep two related LLCs legally distinct.
Sales Tax on Business-to-Business Sales
When one LLC buys taxable goods from another, sales tax generally applies the same way it would in a retail sale. The selling LLC has to collect sales tax if it has nexus in the buyer’s state. Since South Dakota v. Wayfair, states can establish nexus based on sales volume alone, with no physical presence required.9Supreme Court of the United States. South Dakota v. Wayfair, Inc. The most common threshold is $100,000 in annual sales or 200 transactions in the state, though some states set higher bars or use only one measure.
The big exception in a B2B context is the resale exemption. If your LLC is buying goods to resell them, you provide the seller with a resale certificate and the sales tax obligation shifts to the final consumer.10Multistate Tax Commission. Uniform Sales and Use Tax Resale Certificate You need a sales tax permit in the relevant state to issue one. The seller should collect and verify the certificate before treating the sale as exempt, because an invalid certificate leaves the seller on the hook for the uncollected tax.
No single resale certificate works nationwide. The Multistate Tax Commission publishes a uniform version accepted by roughly three dozen states, and the Streamlined Sales Tax project has its own, but several states require their own forms.10Multistate Tax Commission. Uniform Sales and Use Tax Resale Certificate If you buy across state lines, expect to keep more than one on file.
Paying a Foreign LLC
Cross-border payments follow a different set of rules. When a U.S.-based LLC pays a foreign entity for services, federal regulations require the paying LLC to withhold 30% of the payment and remit it to the IRS, unless the foreign entity provides documentation supporting a reduced rate or exemption.11eCFR. 26 CFR 1.1441-1 – Requirement for the Deduction and Withholding of Tax on Payments to Foreign Persons That documentation is usually a Form W-8BEN-E, which the foreign entity uses to establish its foreign status and claim any treaty benefits.12Internal Revenue Service. About Form W-8 BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting
You report these payments and any withheld tax on Forms 1042 and 1042-S, not the 1099 series used for domestic payees. If the foreign entity sits in a country with a U.S. income tax treaty, the rate on certain types of income can drop well below 30% or disappear altogether. You can’t just take the payee’s word for it; a properly completed W-8BEN-E has to be on file before you pay, or your LLC will be liable if the IRS challenges the reduced rate later.
Banking and Records That Hold Up
Every payment between LLCs should move through dedicated business accounts. Using a personal account to pay or receive business funds blurs the line between the owner and the entity, and that’s exactly the behavior that erodes an LLC’s liability protection. ACH transfers and wire payments leave an automatic audit trail and run under rules set by Nacha.13Nacha. How ACH Payments Work
Banks are required under the Bank Secrecy Act to report cash transactions over $10,000 and to flag suspicious activity regardless of amount.14Financial Crimes Enforcement Network. The Bank Secrecy Act Transactions over that threshold aren’t illegal or unusual; they just generate a report. Structuring payments to stay under $10,000, on the other hand, is itself a federal offense. If your LLC legitimately owes another LLC $15,000, send it as one payment and let the bank file its report.
Keep the invoice, the proof of payment, and any correspondence about the work for every transaction. Tie each payment back to a specific contract or purchase order. Records like these do two jobs at once: they support your deduction if the IRS asks, and they show that your LLC operates as a genuine separate entity rather than an extension of your personal finances or another business you own.