If you operate your business as an S corporation and pay yourself on a 1099-MISC, then stop what you’re doing and read this article.

First, let’s be blunt: You shoot yourself in the foot when you pay yourself on a 1099. We’ll show you exactly why you should avoid this.

You generally belong to one of two groups when you operate your business as an S corporation and also pay yourself on a 1099. The first group consists of those S corporation owners who pay their entire compensation on the 1099.

Some members of this first group intentionally use the 1099 method to avoid the hassle of payroll, unemployment taxes, and the possible cost of a payroll service. Other members of this first group were 1099 independent contractors before they incorporated and think that 1099 treatment of their efforts is the right thing to do, so they have their S corporation pay them as contractors.

Members of the second group pay themselves on both ... Log in to view full article.