Silly question, but I am new to this sort of thing. In 2025, I invested a few thousand dollars into a local business run by a family friend. In exchange, he said he would give me shares of stock since he is registered as an LLC. I don't deal with the business's finances at all, so I don't know how the stock is organized or distributed.
How will this affect my tax return? Does it work the same way as buying stock in a publicly traded company?
I invested in a private local business and got stock options in exchange. How does this affect my taxes?
byu/wayne62682 intax
Posted by wayne62682
6 Comments
Maybe you should ask your friend who owns the business you invested in
LLCs don’t have shares of stock; they have membership units.
How it impacts your return depends entirely on how the company is organized for income taxes. An LLC is not a tax designation-it can be taxed as a partnership, S corp or C corp or a sole proprietorship if it only has one owner.
However,, if you truly bought stock OPTIONS then you just have a investment in those options and nothing is reportable on your return until you exercise the options and actually become an owner or they expire.
Said he would give you? I really hope you have something in writing or you are very likely to end up in court some day.
You need to learn how this is organized and distributed.
If you don’t have paperwork, I would start from the assumption you just made a gift to your friend and won’t be getting anything in return.
There may be income passed through to you from the LLC on Schedule K-1 that you need to report on your tax return. You should ask your friend when this will be provided to you.
If they are unexecuted options then you currently have nothing but an opportunity.
When you exercise them, you will have to recognise the difference between the option value and the excise value as income/loss.
After you exercise them you are an owner. If it is taxes as a passthrough entity (partnership, S-Corp) you will receive a K-1 to report your share of the company activity each year. Yes, you have to pay taxes on your share of company profits even if you don’t receive the money. If ti is not a passthrough (C-Corp) then you would only have to worry if the stock issues a dividend, the company fails and becomes worthless, or you sell your shares.