I am doing quite a bit of sidework this year and wondering at what point would it be a good idea to "start a business" and bill through that.
The major reason to start an LLC for side work is if you want the additional personal liability protection afforded by one. If you're operating as a sole proprietor, you may be exposing yourself to liability: debts and judgments against your business can put your personal assets at risk!
So, if you're intending to continue and grow your side work in the future, you ought to consider the LLC sooner than later.
It's also an important legal decision and you should consider seeking a professional opinion.
The Wall Street Journal has a brief guide titled How to Form an LLC. Here are some notable excerpts:
Also check out onstartups.com's Startup 101: Should You Form An Inc. or An LLC?
Here are some additional articles that discuss the advantages / disadvantages of forming an LLC:
An LLC is overkill for 99% of 1 man small businesses.
Side-businesses should remain as sole proprieterships until they get much larger and need the benefits of the LLC laws.
You can still bill through a company name if you want to start building a brand:
And set aside 25% of your gross income for Uncle Sam. He wants you to file a Schedule C with your regular 1040 at tax time. He doesn't care about your company. He just wants your social security number with a big fat check stuck to it.
Be sure to maximize your tax savings by tracking your expenses like a hawk. Every mile is worth 50 cents. I recommend using a tracking system like the TaxMinimiser.com (buy the $4 version to see if you like it).
Bottom line: EARN MONEY. Don't set up a "corporation".
Not all of the reason to start an LLC is liability (although that is implicit). There are two main reasons as far as I have experienced it:
I always recommend that people set things up properly from the beginning. If you do start to grow, or if you need to cut your losses, it can be very difficult to separate yourself from the company if it isn't set up entirely apart from you.
I was once told, "Run your small company as you would wish it to be." Don't get into bad habits at the beginning. They become bad habits in big companies later on.
It really depends on the type of business you are running. If there is any chance of liability, you should protect yourself with an LLC. Then it is much more difficult for them to sue and take personal assets. For example, if you are a wedding photographer, you would want to be an LLC in case you lose someones pictures.