Owners who start a second or third LLC often keep running everything through one bank account 'for now'. It is the single most common source of messy books, confusing tax returns, and uncomfortable questions later. Separation is easier to set up at the start and very hard to untangle afterward.
Why separate books matter
- Each LLC may file its own tax return or report differently on the owner's return, depending on classification.
- Lenders, landlords, and buyers evaluate each entity separately.
- Mixing money weakens the case that the LLC is a genuinely separate entity, which matters for liability protection. This is a legal question, so ask an attorney how it applies to you.
- Profit and loss by entity is the only way to know which business is working.
The basic setup for each entity
- 1Its own EIN where required, and its own tax classification.
- 2Its own business bank account and credit card.
- 3Its own accounting file, or a clearly separated company in your software. Avoid using classes alone as a substitute for separate legal entities.
- 4Its own set of records: contracts, licenses, and insurance.
- 5A written operating agreement.
How different structures are taxed
Several single-member LLCs owned by one person are each generally disregarded entities, reported on separate Schedules C or E on the owner's return. Multi-member LLCs file Form 1065. If an LLC elects S corporation status, it files Form 1120-S. A single owner can therefore have a very different filing pattern for each entity. See single-member LLC tax filing and multi-member LLC tax filing.
Intercompany transactions
Money that moves between your LLCs needs a label. Without one, the books cannot say whether the transfer was a loan, an owner contribution, a distribution, or payment for services.
- Loans between entities: record as due to or due from accounts in each entity's books, with a written note where the amounts matter.
- Owner contributions and distributions: route through the owner, not directly between entities, when that matches what actually happened.
- Services and management fees: invoice them, record income in one entity and expense in the other, and consider tax and legal effects.
- Reimbursements for shared costs: allocate by a documented method.
Shared expenses
Rent, software, insurance, and staff often serve several entities. Choose one entity to pay and allocate by a reasonable, consistent basis such as square footage, headcount, revenue, or time spent. Record the allocation each month and have the other entities reimburse the payer.
Payroll across entities
Employees are generally employees of the entity that pays them. Having one entity run payroll for workers who serve several can create issues, so seek advice on how to structure and charge for shared staff. See small business payroll services.
Sales tax and licenses
Each entity that sells taxable goods or services needs its own sales tax registration in each state where it has nexus. See multi-state sales tax compliance.
Reporting for the owner
- A profit and loss and balance sheet for each entity.
- A combined view for your own decision-making, clearly labeled as a management report rather than a tax document.
- A schedule of intercompany balances that agrees from both sides.
If your entities are already tangled
Start by freezing the mixing: open the missing accounts, then clean up past periods. Reconstruct who paid what, classify each transfer, and document the result. See bookkeeping cleanup services and business tax return amendments if past returns need correction. For general advice on whether you need to restructure, ask an attorney and your tax adviser together.
Our bookkeeping service sets up and maintains separate books for each entity. To discuss your bookkeeping needs, tell us how many entities you have, how they are taxed, and how money currently moves between them.
