John 1 year 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 HandrickMember1 year 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 Writer