That's interesting - I hadn't considered switching to an S corp. Would I lose any benefits by making that change? And would it affect how I handle the two different income streams?

You wouldn't lose the liability protection benefits, but you would lose the ability to retain earnings at the corporate level at the 21% rate. All income would flow through to your personal return regardless of whether you take it out of the business. For handling the two income streams, there's no difference - both producing and consulting still qualify as personal services. You'd still want to maintain clear records separating the different business activities, but the S corp can absolutely handle both streams. The main benefit is avoiding potential double taxation, especially if you need to take most of the income out as compensation anyway.

There's actually an opportunity there depending on your overall income situation. With a C corp PSC, you could potentially recognize those monthly payments as corporate income when received, then time your salary distributions strategically based on your personal tax situation each year. Gives you more flexibility than if you were receiving those payments directly as an individual.

That's a great point I hadn't thought about. I'm definitely interested in knowing if there are smart ways to handle the timing of those monthly payments to optimize my tax situation.

Do you know if this affects the recipients in any way? I'm worried my contractors will be delayed in filing their own taxes because of this.

Not at all - your contractors don't need to wait for the state to accept anything. As long as you provided them with their 1099-NEC copies (either paper or electronic), they have everything they need to file their taxes on time. The state acceptance is just confirmation that you've met your filing obligation as a business. It has zero impact on your contractors' ability to file their own returns. They just report the income amount shown on the 1099 you gave them.

I've used both tax1099.com and Track1099 (different businesses), and honestly the state processing times were slow with both. I think it's just the state systems being outdated rather than the service you use to submit.

My accountant told me it's definitely a state issue, not a platform issue. He said even when they file through their professional software, state acceptances for 1099s are slow. Some states are actually printing them out and scanning them into another system! No wonder it takes forever.

Thanks for this advice! Do I need to file any other forms besides the Schedule C? And what counts as "material participation" if I'm still in the planning/setup phase?

You'll need Schedule C and potentially Schedule SE if your net profit (once you have income) exceeds $400, since you'd owe self-employment tax. You might also need Form 4562 for depreciation and amortization of startup costs over $5,000. For material participation during planning/setup, track time spent on: researching your market, developing business plans, meeting with potential suppliers/partners, setting up your business infrastructure, building a website, creating marketing materials, obtaining necessary permits/licenses, and attending relevant training. The IRS has several tests for material participation, but the most common is the 500-hour test (spending more than 500 hours on business activities during the year). Keep a simple log with dates, hours, and brief descriptions of what you did related to the business.

This isn't entirely accurate. If they're truly "startup" expenses before the business is actually in existence, IRS Publication 535 says they're not deductible until the month when the active business begins. You can elect to deduct up to $5,000 immediately once the business starts, with the rest amortized over 15 years.

Thank you for this insight! Do you have any suggestions for how I might approach the conversation with the CEO again? Is there specific regulatory guidance I could reference to help clarify the distinction between reporting requirements and payment structure?

I'd suggest approaching the conversation by acknowledging their regulatory concerns first, which shows you understand the importance of compliance. Then, bring up that many financial institutions separate personal board service from compensation arrangements. Ask if their concern is based on a specific regulation or internal policy. For reference materials, the FDIC's "Pocket Guide for Directors" and the OCC's "Director's Book" both discuss board responsibilities but don't prohibit compensation to business entities. You might also want to have your CPA prepare a short memo explaining the tax structure and confirming your personal liability remains unchanged. Having something in writing from a professional often helps overcome institutional resistance.

Good point! From my experience as a board member who uses an S-Corp, you'll still need to pay yourself a reasonable salary from the S-Corp for your board service. The tax advantage comes from only a portion of the income being subject to employment taxes, not eliminating them entirely.

That's a brilliant suggestion! Do you find that CPAs who own their own businesses charge more or less than those working for larger firms?

In my experience, solo CPAs or small firms often charge less than the big accounting firms, but it varies widely. Some specialists charge premium rates because of their expertise, while others keep rates lower because they have less overhead. What I've found more important than the base rate is how they structure their fees. My CPA charges a monthly retainer that includes regular check-ins and planning, rather than billing me by the hour every time I have a question. This encourages me to reach out proactively instead of avoiding contact because I'm worried about the clock ticking.

I've been using a virtual CPA for my consulting business for 3 years now. It works great honestly. We do video calls quarterly and email/text the rest of the time. The only downside is no in-person meetings, but the upside is I found someone who specializes in exactly my type of business rather than settling for whoever was local.