• Know the following regarding the ¨ignorance of the liability¨ excuse: this is the most common excuse the office hears. No matter how cute or persuasive or nice you are, if you did not send in your exemption form prior to February 28 of the year immediately following your tax liability then you will have to pay the tax itself, no matter what. (If you somehow get out of it, please let all of us know how you did it.)
• Know the following regarding the penalty portion of your liability: you have the right (no matter what the clerk at the window says) to request a one-time penalty waiver due to your ignorance of liability. A clerk adamantly insisted to me at the West LA office that I could not have a penaty waiver.
• Should a clerk refuse to give you a penalty waiver and this is your first time requesting one, then ask for his or her supervisor. Or simply go to a different LA City Finance Office, which is what I did when I was refused a penalty waiver. There are several Finance Offices in LA County.
• A penalty waiver is a request only. It does not guarantee that your penalty will be waived, but you have a much better chance of a successful waiver if you pay the back taxes on the spot.
• Try to go to the LA City Finance Office early in the morning. The people who work there have to deal with all kinds of schmuks all day long. It´s best if you talk to them before the afternoon rush of other people with problems.
• Always be nice, even if you have a bad experience with a clerk, like I did. This particular clerk was annoyed because I arrived just as the office opened and apparently I interupted her coffee conversation with a co-worker. I suspect this is why she lied and told me that I was not eligible for a penalty waiver.
• Don´t be confrontational with a clerk who informs you that you are still liable for the back taxes – the penalty waiver is the best help they can give you. Not even their supervisors can get you out of your tax portion of the liability.
• Spread the word! Inform your friends who run freelance businesses in the City of LA about this issue so that they can get their exemption forms in on time. The City of LA does not inform anyone of their liabilities until after the deadline of February 28. Knowledge is power!

Good Luck! And next year, remember to file your exemption form on time.

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.