Running a teeny, tiny lil’ side biz in LA? Getting 1099’ed because your employer is being cheap? Then read on and save some money on your tax bill! Because, oh yes, the City of Los Angeles wants their piece of the pie and what you don’t know will cost you plenty! What you will know after reading this article could get you an exemption from a city tax liability that you probably didn’t even know you had.
Don’t expect your tax accountant to inform you of your liability with the City of LA. I love my tax accountant, but he didn’t tell me about my responsibilities with the City of LA. Learn from my mistakes and save some money!
I received a letter from the City of Los Angeles back in June regarding a possible outstanding tax liability from the past three years, but I was on the road and couldn’t do anything about it. The reason I write this boring tax post is for all you creative type people out there. If you are anything like me, you are too busy worrying which color looks best with that background or wondering how in the world you are going to hang the stars and moon – literally – for that demanding client. Or you could just be receiving 1099 income for doing some independent contractor work within a creative field in Los Angeles.
Whichever the case – be aware and informed! (Regardless if you are in a creative field or not) If you –
- Have a schedule C on your federal taxes (ie, small business expenses) and/or
- Are 1099’ed for independent contractor work
then you are liable for the City of Los Angeles small business tax.
Ready for the good news? If your gross receipts (the income before your write-offs) total to less than $100,000.00 then you are EXEMPT. But in order to receive this exemption, you must file for the exemption with the city of Los Angeles before February 28 of the following tax year that you’ve incurred your tax liability. In plain speak, that means if you have any Schedule C income for 2008, then you have to file the exemption with the city no later than February 28, 2009. The exemption is really quite easy to file; it’s just another hoop to jump through down at the LA City Finance Office.
Now for some Q & A:
Q: What if I don’t inform the City of LA that I’ve been 1099’ed or have a small business (Schedule C) on my federal taxes?
A: Well, they will find out . . . like they did with me – there’s some sort of computer program they run/information exchange they have in cooperation with the state. And then, you will still be liable for the back taxes plus a monthly penalty.
Q: But, what if I didn’t know?
A: Crying about it to them down at the Office of Finance won’t help. (I tried that – and I’m convincing.) You still have to pay it.
Q: But that’s not fair! I still have to pay the penalty, even if I didn’t know about my liability?
A: A lot of stuff in life isn’t fair, but you can request a one-time penalty waiver due to your ignorance.
Q: I already have to deal with this issue and I’m already late. Do you have any advice on how to talk to the people at the City of Los Angeles Finance Office?
A: Yes, I do. Click here to read that post. Trust me, you want them to like you. You want them to like you – A LOT. If not, they could make your life miserable and you might have to pay more than you should.
Q: I just received a letter saying that I owe for 2009? I don´t understand.
A: Make sure you file your exemption form with the city of LA (if your gross receipts for this year end up totaling less than 100,000.00) between January 1 and February 28, 2010 and you will be exempt!
So, now you’ve read the article. Now you know. Save some money. Get your butt in there and file that exemption form so that you don’t have to shell out hundreds or (if you did really well in your small business last year) thousands of dollars of Los Angeles City taxes that you technically are not liable to pay – if and only if you file that god-damned form in a timely manner.
Thank you for posting this article! I also received that letter in the mail and was totally perplexed by it. It’s such a relief to find information about this whole Small Business Tax fiasco written in plain speak. Thank you, thank you, thank you.
Channing, thank you for your comment. It pleases me to know that someone will be getting an exemption from this purposefully confusing tax situation. While I´m glad the city of LA gives exemptions, I do wish they´d let people know about it before their tax or the exemption deadline is due. And I wish that the way the law is written was less confusing!
i just got one as well. i made less than 500 smackers and they are asking for an estimated assessment of 4g’s!!! and possible levy if i dont respond. I mean come on. This is the first letter i received and i do freelance photography and had all but 2 clients, 500 smackers. Im going to go down to the office and im pretty likable and i hope it works.
Thanks!
Jennifer, thanks for the comment.
You can be cute and likeable all you want, but the bottom line is that they want their money. And sometimes the counter-intelligence can be snotty. If they don´t like you, they will give you false info. Talk to a manager and nicely ask for a one-time penalty waiver. That´s the best you can probably do. But, eh, now you know, right?
This is downright ridiculous. I’m actually in school now and I got the letter today stating that I also owe around $4,000 for 2007, 2008 and 2009??? I can’t believe they are going around doing this without any basis for even charging me for 2008 or 2009 since i haven’t even filed my taxes! thanks for your post AnnaTude…i will be asking about that one-time penalty waiver.
Sarak, the 2008 tax liability is an estimate based upon a percentage of assumed growth in your ´business´ and you may not be liable for it, depending on if you did any independent contractor work last year. As for 2009, just make sure that if you do any independent contractor work this year, that you FILE YOUR EXEMPTION FORM between January 1 and February 28, 2010 and you will not owe anything.
Definitely ask for a penalty waiver for 2007. As far as 2008, when you file your federal taxes, remember that you´ll be liable for paying a city tax for anything that shows up as a schedule C (or 1099) for last year. Your best bet is to go into the office knowing your 2008 info now and if you owe, pay for both years.
I think I had to pay a grand total of 200.00. I hated doing it, but it´s over now.
Thank you for this quick primer on a confusing, difficult, and rather annoying topic.
Looks like I’m screwed since I missed the 2/28/09 deadline. It’s so absurd – I’m creating work and bringing in money from other countries into this city with a book celebrating the English language and the United States. Reward from city fathers? A tax on my almost non-existent profits. Great.
wow. thanks for posting.
This whole scenario is incredible and it makes me even happier I left that sick joke of a city. I haven’t lived in LA for years, and now they’ve sent me the letter saying I owe money for 2005-2007. I didn’t even make money in 2005 (like, literally didn’t get a single client for my freelance copywriting that year; all of the work I found was through temp agencies and I certainly did pay my LA taxes for those things) but they’re saying even if I show them I didn’t make any money, I at least owe 103 per year, the minimum amount due, which I would have been exempt from if I’d known I needed to apply to be exempt from it. (the fact that you have to go get a special license to be exempt if you don’t make enough money to actually pay the taxes suggests to me that the law was set up specifically to try to gouge poor people where possible…)
This was a side thing I did just every so often to make a few dollars while I worked my regular jobs in hell-A, and my income for those three years was maybe a few hundred bucks. In 2005 when I set up my website and spent money to try to get started, I thought it would be a potential career. It wasn’t, I moved on to a real job but left open the possibility of doing work on the side, and now the dying city is just grasping at straws. How is it that here in 2009 they can figure out how to let me know about my “obligations” to them as a “small business”, but they couldn’t back then?
thanks anna! all the kids in my office (architecture) are all 1099s so we all got them. this info really helps. I’m gonna see if the boss will split this with us at least….
Anna, Thanks for the information.
Did you happen to find out how many years it is necessary to go back for past taxes?
Also, was interest applied and at what rate?
I’ve seen the application which list prior years going back 8 years. This seems far to many back years to be actually “required”. Any info regarding this?
Hello,
I have a small business that sells advertising. It is classified as a Single Member LLC.
My customers pay me by check every month and I deposit these funds into a Bank Account set up with TIN # of Business.
My question is this: At the end of the year do these customers send me and the IRS a 1099 (I am not a contractor). I am trying to find out what is sent to the IRS? I just want to know when I am doing my taxes if I need to match up all 1099 (if sent to me) for my income? Or do I just keep track of my income through QuickBooks and report this? I just wanted to make sure they match if the IRS is getting something from customers. If they are not getting anything, how do they know what my income is?
Just trying to understand.
Thanks in advance for the help.
I got the letter in the mail. Is Los Angeles the only city that does this? Man, talk about shady.
Thank you for sharing this story Anna! My situation is similar to Sarak above, getting hit for $4000, one of which the company did not even exist yet. I’m glad that you provided this information here that we can learn from.
Thank You so much for this information!! My husband and I just got one for 2010 and we didn’t even do the 1099 work in Los Angeles County. We were really confused but this helped a lot, thank you!
Thank you for posting this! I got hit with this same scam — they back taxed me just now, back to 2008! That’s FIVE years they let it rack up interest and penalties before bothering to notify me! I owe hundreds of $$, when I should have been exempt… What a racket. I’m sorry you got hit with this, too, but it’s nice to know I’m not alone, and the advice on getting the one-time penalty waiver is great, thank you. I’m passing your blog on to all my self-employed LA friends! (= most of them)
Hi Anna,
Thanks for sharing this information. It’s really something that they don’t have to inform you when the rules change but they can penalize you for it.
I know the city is having financial problems but getting some order in place might help.
This year I will have to pay some taxes for the first time. Your information makes me feel much more prepared.
Love light and prosperity to you.
wow. thanks so much for letting us know. I heard about this in a Sag meeting but the guy didn’t explain nor did he really give us the info. I went to website and couldn’t find the exemption form. Needless to say 3 years later they sent my letter today. so i just had to get on here and figure out what to do.
they said i have 10 days. I’m already on payment plan to pay State of Ca. IRS and now the city. WTH? with many of the jobs dying down in film/tv i mean what the heck can a person do? they tax us to death here in los angeles. i tried to move out of LA but i need to be retrained and I can get my associates and then my bachelors really close to where i live. in my opinion this is just awful . no wonder most of the movie industry has LeFt and heading to other states where they can catch some breaks from all these taxes.