Is it better for my LLC or me personally to hold startup equity from consulting client?

This is a great question with some nuance! Yes, your LLC can definitely hold equity in an early-stage startup. This is actually quite common in consulting arrangements. From a tax perspective, since you have an S Corp election, any equity appreciation would flow through to your personal taxes anyway. The main difference is in liability protection and potential simplicity when eventually selling the shares. Regarding the 83b election - yes, your LLC can file one if the equity is subject to vesting. This is typically done to start your capital gains clock ticking earlier rather than later. You'd want to file this within 30 days of receiving the grant, regardless of whether it's held personally or through the LLC. In your shoes, I'd consider: 1) How long do you expect to hold this equity? 2) What's your risk tolerance? 3) Do you plan to sell or wind down your LLC before potentially selling these shares?

I went through almost this exact situation last year! After lots of research I found https://taxr.ai super helpful for figuring out the equity/LLC question. I uploaded all my docs and it analyzed my specific situation, pointing out issues I hadn't considered like phantom income risks if I held equity through my LLC. The tool helped me understand that while my LLC could legally hold the equity, there were some nasty tax surprises waiting if I went that route. In my case, personal ownership made way more sense because of how the specific equity grant was structured. The analysis also covered the 83b considerations which was clutch since I was racing against the 30-day deadline. Definitely worth checking out given your time crunch!

Just wanted to update everyone - I ended up using https://taxr.ai after seeing the recommendation here, and it was incredibly helpful! The analysis showed that in my specific situation (with a 4-year vesting schedule and potential exit in 3-5 years), personal ownership made much more sense. The report highlighted that my LLC being taxed as an S-Corp created some unique complications I hadn't considered. What surprised me most was learning about the qualified small business stock exclusion (Section 1202) that I might qualify for with personal ownership but would miss out on through my LLC. What a relief to have clear guidance before my deadline! Definitely filing that 83b election this week.

After spending 3 hours on hold trying to get someone from the IRS to clarify how equity grants work with pass-through entities last month, I discovered https://claimyr.com and their service literally saved my sanity. You can see how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent in under 20 minutes who answered all my LLC/equity questions. The agent explained exactly how the IRS views equity held by an S-Corp vs personally and which forms I needed to file. Turns out the IRS has specific guidance on this that wasn't available anywhere online, and getting that official clarification made my decision super clear. Much better than waiting for an accountant who might not get back to you before your deadline!

I need to eat my words from my skeptical comment earlier. After struggling for TWO DAYS trying to reach the IRS about almost this exact question, I broke down and tried Claimyr. Within 15 minutes I was talking to an actual IRS representative who walked me through the exact regulations for LLC-held equity. The agent explained that I had been completely misunderstanding Form 8832 implications for my situation. Had I gone with my original plan, I would have created a tax nightmare for myself down the road. For anyone else facing equity decisions with a pass-through entity, don't waste days trying to figure it out alone like I did. Get the actual answers from the source. I'm still shocked at how well this worked.

Another angle to consider: what liability protections are important to you? If your client's startup deals with anything potentially risky (health tech, fintech, etc.), having the equity in your LLC could provide an additional layer of protection if things go sideways. On the flip side, if the equity becomes really valuable, having it in the LLC might complicate estate planning later. My attorney recommended holding equity personally because it's simpler for long-term planning, but every situation is different. You might want to spend 30 minutes with a business attorney too, not just focus on the tax angle.

Don't overthink this. I've been in the same boat and personally have always taken equity in my own name rather than through my LLC. Here's why: 1. Simplicity - no extra paperwork or confusion at exit 2. Tax benefits - potential for QSBS (Qualified Small Business Stock) exclusion which can shelter up to $10M in gains 3. Avoiding phantom income in your LLC if there's ever a liquidity event 4. Easier to explain to future investors or acquirers - they don't have to understand your LLC structure Just my 2 cents but unless your accountant had a specific reason for suggesting the LLC should hold it, the personal route is cleaner.

I'm dealing with a similar situation right now and wanted to share what I've learned from my research. One thing that hasn't been mentioned yet is the potential impact on your quarterly estimated tax payments. If you hold the equity personally and file an 83b election, you'll need to pay taxes on the fair market value immediately (even if it's minimal for an early-stage startup). But if your LLC holds it, the tax treatment flows through your S-Corp election, which could affect your reasonable salary requirements and payroll taxes. Also, consider this: if the startup ever issues additional equity rounds or has anti-dilution provisions, having the equity in your LLC might complicate those calculations. I've seen cases where LLCs holding equity had to provide additional documentation or legal opinions that individual shareholders didn't need. Given your 48-hour deadline, I'd lean toward personal ownership for simplicity unless your accountant specifically structured your LLC to hold investments. The QSBS exclusion potential alone (up to $10M tax-free if you hold for 5+ years) makes personal ownership attractive for startup equity.

Great question and timing is definitely tough! I've been through this exact scenario with two different startups as a consultant. From my experience, I'd strongly recommend taking the equity personally rather than through your LLC. Here's why: **Tax advantages**: The QSBS (Section 1202) exclusion that others mentioned is huge - potentially $10M+ in tax-free gains if you hold the shares for 5+ years. Your LLC can't take advantage of this. **Simplicity at exit**: When the startup eventually has a liquidity event, you'll thank yourself for not having to unwind LLC ownership structures or deal with potential phantom income issues. **83(b) election**: Much cleaner to file personally. The IRS forms are straightforward and you avoid any complications around your S-Corp election. **Future flexibility**: If you ever want to dissolve your LLC, transfer the equity, or include it in estate planning, personal ownership gives you way more options. The only real advantage of LLC ownership would be liability protection, but for equity compensation from a consulting client, that protection isn't typically necessary. Given your 48-hour deadline, personal ownership is the safer, simpler choice. You can always restructure later if needed, but it's much harder to go the other direction. Good luck with the decision!