If I'm moonlighting and building the product at night and on weekends - at what point does it make sense to establish a business entity (e.g. LLC, Inc, etc)?
Would this make sense to only happen once I start accepting payments from customers (product would obviously have to be launched) ?
It makes sense to establish a business entity when you want to accept payments from customers, attract investors, or split ownership of the company. There is also the added benefit of shifting tax liability over to the corporate entity.
It's critical to have protection of personal assets whenever you're running a business. Therefore, I would suggest that you incorporate immediately prior to launch. You will have to invest some time in determining what kind of business entity you want to become.
I would go ahead and establish the company, at least as far as setting up a tax ID number and an LLC, and file taxes which will likely show a loss. Might not be much, but anything that can reduce your AGI might be worth it. Keep in mind, however, that the expenditures for R&D may have to be categorized as assets rather than expenses.
There are multiple factors to be taken in consideration :