Have you received a letter from the City of Los Angeles Office of Finance? First of all, I suggest you don't ignore it. Second, it really may not be as bad as you think.
Before going any further, it is really important to note that this is NOT an income tax issue. So I do not claim expertise in this area; but I do attempt to offer some basic information and guidance since I have dealt with the issue repeatedly over the years. I cannot represent you in front of the City of Los Angeles. I can only encourage you to get your license on time and renew it annually on time. That said, here are some things I have learned over the years.
If you are a resident of Los Angeles, any year you perform services as an independent contractor in exchange for non-employee compensation (IE. Cash or 1099 income), you are subsequently required to file a Schedule C on your Income Tax Return. The title of a Schedule C is “Profit or Loss from a Business”. As such, whether intended or not, the IRS and by extension, the City of Los Angeles, considers you to have a business, and the City of Los Angeles requires you to have a Business License in order to operate within the city limits. If you live inside the city limits of Los Angeles, then your business is considered to be operating there even if your income comes from outside of the city limits.
The good news is that a Small Business exemption is available for up to $100,000 in income, or if you are a Creative Artist, up to $300,000. However, in order to obtain the exemption, the initial filing must be done by the last day of the following month of the start date of the business. So if you began performing the work in March, you need to file for your licence by the last day in April. After that, to receive the exemption each year, the renewal must be filed by the last day of February (or the following Monday in the event that the last day falls on a weekend).
Often when letters come from the city, they come with a substantial monetary demand. You may not have made as much money as the city is claiming that you have made on the form. Be sure to look for the basis. You may need to call the number on the form or go to a local office to straighten things out. Remember, the tax only has to do with your independent contractor income, NOT your W2 income. Unrelated income should be irrelevant to the correspondence you have with the City of LA. But remember, if you make under $100K as a Small Business or under $300K as a Creative Artist, you are exempt from owing anything as long as you file on time each year.
NOTE: Work performed outside the City of Los Angeles is a part of the calculation if your base of operations is within the city limits. However, only “20% of gross receipts from work performed outside the City shall be deemed to be that portion subject to tax as attributable to business engaged in within the City.”
Lastly, even if you have no anticipation of receiving this kind of income, I strongly suggest you still register. The exemption deadline is February, and you never know what March-December may hold for you as far as earnings.
