John 10 months, 4 weeks ago
Starting a business while keeping W2 job and associated unemployment benefits
Hi and thanks in advance for your interest and help with my confusion.
I am a union member who works sporadically throughout the year. I open an unemployment claim every year in January. If I have work through the union I earn W2 income; if there is no work I collect unemployment. I qualify for maximum weekly wage benefits for 26 weeks; this timeframe is usually extended if I have partial claims.
I want to start a business and collect business profits in a way which keeps my unemployment benefits intact. I also want the tax deductions an LLC or a Corporation allow this lowering or eliminating the tax I pay.
Some business owners, who are sole proprietors, elect to form C corporations and pay themselves as W2 employees. If their C Corp business fails or temporarily has no work, as W2 employees they would be eligible for unemployment benefits.
If a business owner elects to form an LLC, income distributions can be made in the form of a draw. Are LLC draw payments considered capital gains? Or should an LLC owner not make a draw but receive one dividend payment at the end of the year. I know capital gains and dividends will not effect my unemployment claim status.
But, a one owner LLC is a disregarded entity, which is taxed as sole proprietor. Could this be construed as income derived from self employed activity? I am unsure. If so, this business classification would invalidate my unemployment claim.
In sum, if I start a business (to make more money and enjoy tax write offs) how do I earn profits that are not construed as self employed activity because I want to keep my unemployment benefits derived from my primary W2 union job income.
Would the specific type of business matter?
Do I need to have a silent partner come in an pay with the ownership percentages which would eliminate the sole proprietor classification?
Should I formulate several LLC’s with distinct separate functions for maximum tax write offs and sweep the profits (if any) into a parent holdings company? This would take more effort and could get complicated.
I am hoping for a solid black and white answer, but am willing to entertain creative ideas to solve this problem.
Your expertise regarding my specific situation would be appreciated!1 Reply
Laura HandrickModerator10 months, 4 weeks ago
I’ll respond only to the portion of your query regarding earning self-employment income while collecting unemployment benefits…hopefully one of our business start-up experts can advise on the best business model to use for tax purposes. Any week that you have any earnings (even from your own self-employment, or small business) you will have to report that as income, which may reduce or eliminate your eligibility for unemployment benefits. If you hire yourself as a W-2 employee (in your own company) that too will make you ineligible for unemployment benefits as you’ll be seen as being employed in another job.
Laura, HR Writer1 Reply