Consult as an individual or as a company?

Question

I work full time (so benefits, etc are covered), and recently have been offered a consulting position for a previous employer. I have read and fall within the acceptable guidelines of the Moonlighting policy at my current role, and have made clear the IP restrictions at my previous role, so they will be careful not to assign me tasks that generate new IP.

That's my situation. With the above information (please ask if you need more), would it make more sense to offer my consulting services under the protection of a legal entity or as just myself? This is just from the tax perspective here, but would love an answer that may encompass legal implications as well (i can cross post if that is not in the scope of this SE). From what little research I've done, there is no downside to incorporating. Is this true?

This previous PF&M question touches on this topic, but never explores the individual->company transition.

Further, if it is indeed beneficial to start a company, which structure is most suited to my situation? I am only aware of a few, and would love to tap the knowledge of this SE.

Thank you so much for your help. Further, I do not mean to rush anyone at all, and welcome later posts to help any others who run into this situation in the future, but I have a ~Oct 1 deadline to get this sorted out, if that affects which type of decision I should make.

Answer 1

You'll have to talk to a lawyer about the legal question and a licensed tax adviser (lawyer/CPA/EA) about the tax question.

From where I see it, there's no upside either. Since you're performing the work yourself, the limited liability of a legal entity won't limit your liability much, because you're still liable for your own misdoings. You might be better off with an E&O insurance or some other kind of liability insurance that would suit your needs and protect you personally.

From tax perspective, LLC is disregarded so you'll be a schedule C taxpayer anyway. Corporations have significant overhead not worth dealing with if you're a sole owner (IMHO). I wrote about it in this answer.