I have been unemployed this year and received benefits through NY State and at my option I have not had any taxes withheld in the belief that I would deal with that by next April 15th (no wife works and gets taxes withheld and I have substantial of job search expenses).

I am negotiating to take a job as an independent contractor for 1-2 months (in the hopes that it may turn out to a temp to perm situation). Should I set up a company or LLC for tax purposes? What are my obligations to the IRS and I guess NYS to file quarterly forms and or taxes (Income, FICA, etc)?

Thanks in advance...

Note that an LLC is a legal entity, not a tax entity, and you must choose whether to report as a sole propeitorship (Schedule C), a partnership (Form 1065) or a subchapter-S corporation (Form 1120S).

If you expect to be an independent contractor for only a few months, setting up an LLC or a S corporation is not, in my opinion, worth the effort. You can report your income and expenses on Schedule C and calculate your self-employment tax (the self-employed's equivalent of Social Security and Medicare taxes) on Schedule SE.

If you do receive income as an independent contractor, you can, for the first year only, avoid making quarterly estimated payments, though you should put aside at least 25% of each paycheck to cover your eventual tax liability.

If the independent contract status extends beyond 2009, you would need to make quarterly estimated payments to both the IRS and the state of New York, with the first payment due on 15 April 2010.

Unless you expect your business to grow many folds and want to tell clients that you are an LLC or Corporation, or your job involves legal risks, you should not go for LLC or Corporation.