Would it be okay to collect unemployment, and start a very small business that brings in $3,000 a year? Would someone have problems when filing business and personal taxes? They will be filed separately (business is incorparated). Thanks in advance, and happy new year!
As far as taxes, if you are self-employed, it takes very little income to create a tax liability. So even though you will only be collecting $3,000, the taxes on this $3,000 will seem rather high. And since only refundable credits can reduce employment taxes, you often end up with a little owed at the end. However, $3,000 is a very small amount of income.
The bigger question is what it will do to your ability to collect unemployment. At some point, even if self-employed, you become employed as far as they are concerned and could lose your unemployment. But this is an area of law of which I am not familiar.
It appears what you are really asking is if you can collect unemployment insurance and avoid reporting your business income by funneling it through another business entity. This is unemployment insurance fraud if you do not report your gross business income on your weekly unemployment reports. If you do report your gross business income, it will cause you to lose your unemployment benifts and/or be investigated, and answer questions like "Where did you get the $ to start a corporation???"
You are not the first to think up this scheme, or the last to be caught for trying it!
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Fraud or no fraud - that is the question. The answer, as with most things in law, is it depends. The most simple answer I can give you is that there is nothing wrong with trying to start a business while collecting unemployment. I would not suggest hiding the fact you are trying to start a business from the unemployment agency in your state. You might start to cross a line if you hid the business.
If the business is just starting, then you very likely have expenses that could wipe out your income. If you are running a loss, then most people would say you don't have to pay yourself a salary in the business.
This being said, unemployment insurance law varies state by state. I believe this would be fine in Florida, but I don't know the answer in Illinois. You should inquire with a local attorney.
I hope this helps!