I've been working as a contractor on 1099 pay for a year or so and I'm wondering if a informed person can help me out here.

A guy told me if I get a business license and open a business account I could put my paycheck in the Business account and then write a check from that account into my personal account. He says this would put me on a W2 and I wouldn't have to pay as much taxes because my business would show no profit or something like that.

Is that ligit? Furthermore it sounds illegal. I have no clue it just seems a bit shady.

Then he went on to tell me that there are benefits to having a businss account such as credit account and loans that when they came due you can file a bankruptcy and it wouldn't reflect on your personal credit report. I don't consider myself stupid but I think I maybe slightly dumber for listening to his "secret banking tactics".

What do you think? The top part may be right I can see how it can be done for 3 to 5 years because the federal government does not expect profit. After that wouldn't you have a big red laser dot on your chest for an audit down the road.

No but if you do it, you may end up paying double taxes.

First you have to pay taxes on the income. AS a 1099 you are alrady in business, and you should have a separate business account already, since everything you spend on that business is tax deductable.
You will have to pay social security taxes no matter what. But you should be paying tax only on the net amount of your income not the gross they pay you.

If you set up a separate corporation, and then took that money and then paid yourself, you would have to pay corp taxes and then personal taxes.

Your best bet is to hire a CPA to explain all of this and set it up where you understand all the legal deductions you can already take.