How does LLC ownership work in relation to U.S. tax law?
It really depends.  If it is offered as compensation (ie in leiu of, or in addition to salary or cash bonus) then it would be reportable income, and if sold later for a profit then that would be taxable as gains.  If this share is purchased as an investment at current value then it would be treated like other securities most likely gains realized at sale.  Any discount could be considered income but there are some goofy rules surrounding this enacted to prevent tax evasion and some to spur growth.  That is the answer in a nut shell.  It is far more complicated in reality as there are somewhere around 2000 pages of regulations deal with different exceptions and scenerios.
"One is a choice the other is not. While they are both liabilities on the balance sheet, in the real world they are quite different.   We do not feel as much ownership over our money that goes to interest payments as we do over our tax payments.  Taxes pay for our government and the services it provides.  Interest, on the other hand, is what we pay in order to have a bank loan us money.  Similar to paying for a good or service obtained from some other business, we do not feel we have a say in what the bank does with that money.  If we disapprove of a business' practices, we stop doing business with them; assuming there are other choices.  We can not practically avoid dealing with our government.   We certainly feel that we should have a say in what is done with our tax money.  I doubt there is anyone in the world that completely approves of their government's spending.  It is very easy to feel marginalized with regard to our tax payments.  For example, some people feel resentment because their taxes fund the welfare rolls. All that said, I believe there is little overlap between the two groups.  It seems to me that you are referring to those with large amounts of high interest (e.g. credit card) debt.  I doubt that a large percentage of them are scouring the tax laws, looking for deductions and loopholes.  If they had that mindset, they would also be working hard to get out of the hole they are in.   In summary, we choose to pay a financial adviser, to take out a loan or to obtain a credit card.  We do not choose to pay taxes.  Since taxes are supposed to pay for our government and things which should benefit everyone, we want a say in what is done with it.  This is also the case because it is forced on us.  (""Fine son, I'll lend you some money, but I don't want you buying cigarettes with it."")  Since our say is limited and we likely will not approve of everything our government does, we want to exert what control we do have: reduce our payments as best we can." The LLC will file its own business taxes which may or may not have business level income and expenses.  At the end, the LLC will issue Schedule K-1 tax forms to the members, that based on their percentage ownership, will reflect the percentage share of the income/losses.    From an individual standpoint, the members need only worry about the K-1 form they receive.  This has quite a few pass-through categories from the LLC, but the Income/Loss may be the only used one.  The individual will likely include the K-1 by filing a Schedule-E along with their 1040 form.  The 1040 Schedule-E has some ability to deduct expenses as an individual. Generally it's best not to commingle expenses.  Additional schedule-E expense reporting is generally for non-reimbursed, but related business expenses.  If a member paid certain fees for the LLC, it is better for the LLC to reimburse him and then deduct the expense properly.  Schedule-E is on a non-LLC, personal level. &gt;That's why the CEO pay is so enormous, because the board can make that decision and none of the common shareholders have enough power to override it.  As with any business, when you own less than 50% you have a  say but  are at the mercy of all the other shareholders.   That's kinda the way things work.  Don't like it?  Don't buy a piece of the company.   Want majority ownership of Intel corporation?  Buy up 2.5bn shares and take controlling ownership.     I still don't get what you're bitching about - that minority shareholders should have a majority say?     That's the way owning a piece of any company works; a  corporation or an LLC.  The same bullshit you're spewing off about is the same bullshit that people bitch about in a democracy; they want their voice to count for more.   You're vote is worth in a company based on the portion you own. Through your question and then clarification through the comments, it looks like you have a U.S. LLC with at least two members.  If you did not elect some other tax treatment, your LLC will be treated as a partnership by the IRS.  The partnership should file a tax return on Form 1065.  Then each partner will get a Schedule K-1 from the partnership, which the partner should use to include their respective shares of the partnership income and expenses on their personal Forms 1040. You can also elect to be taxed as an S-Corp or a C-Corp instead of a partnership, but that requires you to file a form explicitly making such election.  If you go S-Corp, then you will file a different form for the company, but the procedure is roughly the same - Income gets passed through to the owners via a Schedule K-1.  If you go C-Corp, then the owners will pay no tax on their own Form 1040, but the C-Corp itself will pay income tax. As far as whether you should try to spend the money as business expense to avoid paying extra tax - That's highly dependent on your specific situation.  I'd think you'd want to get tailored advice for that. My understanding of this would be that this is for the portion of the subsidiary which they do not own. In other words they record 100% of the subsidiary on their books and then make this entry to account for the % which another company has a minority interest in. "If you elect to have the company treated as an S corp, the profits/losses of the company will pass through to the shareholders (i.e. you) on a Schedule K-1 form every year. These amounts on the Schedule K-1 are taxable whether or not the company actually distributed the money to you. Typically, the company will distribute profits to the shareholders because they will have to pay taxes on this amount. https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/What-is-a-Schedule-K-1-Tax-Form-/INF19204.html So the money held in the company's bank accounts won't appear on your taxes per se, but the profits/losses as reported on the company's tax return will pass through to you on the Schedule K-1. Typically these amounts are taxed as income. Your tax accountant can advise you on how much money you can/should take through regular payroll and how much can be distributed as a shareholder, as well as help you prepare the corporate tax returns and schedule(s) K-1 every year. There are tax advantages to taking money out of the company through distributions instead of payroll, but the amounts can be scrutinized and subject to a criterion of ""reasonable compensation"", hence my recommendation for a tax accountant." "The founders almost certainly owe tax on the ""income"" represented by the rent they aren't being charged. It isn't clear whether the corporation also owes income tax on the rent it is not receiving back from them. You definitely want advice from a paid tax accountant, not least because that helps protect everyone should this arrangement be challenged." I'm not sure why you're confusing the two unrelated things. 1040ES is your estimated tax payments. 941 is your corporation's payroll tax report. They have nothing to do with each other. You being the corporation's employee is accidental, and can only help you to avoid 1040ES and use the W2 withholding instead - like any other employee. From the IRS standpoint you're not running a LLC - you're running a corporation, and you're that corporation's employee. While technically you're self-employed, from tax perspective - you're not (to the extent of your corporate salary, at least).