Being taxed as a business, despite being a public employee

September 5, 2007 6:28 PM

Los Angeles is hitting me for a big chunk of money for business taxes... this despite the fact that I am a public employee.

(In advance: The answer to this question may very well be "get a lawyer/accountant," but I'm not flush with cash at the moment and would like to know what steps I can take short of that.)

I'm a teacher, and I do a small amount of work as a musician. I moved to CA in 2005, and filed taxes for that year here. I included 1099 forms (all from work done in FL, no less) in my tax filings for that year. I also did a small amount of musical work as an independent contractor in CA during 2006.

LA has decided that I am a business for some reason (I don't know why yet), and has decided to tax me. That's cool... but they are apparently basing their estimated tax on all of my income, including that earned as a teacher. The estimated tax far exceeds what I made from my independent contractor work last year in CA.

I'm filing for a hearing (it doesn't help matters that they've apparently tried to contact me, but I moved a few times last year for personal reasons, and some of my mail is just now starting to catch up with me a year later). I have no idea what to expect, what they want from me in terms of documentation, and so on.

I'm sure I'm leaving relevant information out. I have a lot of general anxiety about all matter financial as a matter of course, am having a world-class freakout over this at the moment, and I might be (hell, probably am) mis-explaining. I'll answer questions in the thread... I think my main reason to posting to AskMe is to find out what questions I should be asking LA about this. Thanks.

posted by the_bone to work & money (4 comments total)

Well, no one's responded, so yeah: you'll need an accountant. This seems fairly open-and-shut, but citing the relevant law/providing the correct documents could be the difference between winning your hearing and losing; certainly, relying on common sense to prevail is not a winning strategy. Ultimately, unless you've left out some critical detail, there's no good reason you should be "double-dipped". You've likely just fallen into some quirky vortex of tax law where some 1099 form and audit made someone, somewhere, think your CA salary was part of your 1099 music income. Clearly it wasn't, and you've been paying your teacher's salary taxes, so... should be easy to resolve!

I'm a little unclear on the timeline, though. For what time period are you being asked to pay incorrect taxes: 2005, 2006, or a recent quarter of 2007? sounds like you moved to CA from FL sometime in 2005. In FL through 2005, you were a teacher and occasional musician; in CA, in 2005 and 2006, you were also a teacher and occasional musician. In 2006, you filed your 2005 taxes in CA, including your 1099 work in FL (why?). For state and local taxes, LA is asking that for 2006 (?) you pay taxes on your teacher's salary and your independent earnings as a business? Or is this about the year 2005, where you're being asked to pay taxes on your FL teacher's salary along with the CA music work, all in CA? See, the latter seems the only reason CA would care about your teacher's salary (surely you're not the only CA teacher with side income?), but then they shouldn't be asking for taxes on FL earnings.

Here, do this:

1. Find a decent, inexpensive accountant. You don't need a superstar, since this should be basic stuff for any accountant- you're mostly hiring someone to tell you how to dot an i and cross a t.
2. You may be leaving something out here. Your timeline isn't too clear in this question, so make sure you have that info and the timeline/earnings clear when you go to the accountant.
3. Stop freaking out. This will be resolved, just talk to someone who's knowledgeable, and on your side. This is just some dumb bureaucratic snafu, and you can get through it to get it resolved. Likely once you're talking to someone with the authority to do anything, they'll see what's going on and help you correct it.

posted by hincandenza at 8:44 PM on September 5, 2007

IAAL, but IANYL, and I'm certainly not a tax lawyer, and this is not legal advice.

Of everything hincandenza said, the most important is, "Stop freaking out." This will indeed get resolved. Whatever else happened, you're getting charged the wrong tax, and you know it. So, a judge will too. Get all your paperwork together. All your paystubs, bank account records, etc. Try to contact the tax people first and see if you can work it out with them. If not, go to the hearing. It should get cleared up there.

It never hurts to get legal advice from an actual attorney specializing in tax law. I'm not sure yet that that's 100% necessary in your case.
posted by kingjoeshmoe at 11:24 PM on September 5, 2007

The City of LA tax thing freaks everyone out. Don't worry. See an accountant (email me if you want me to recommend one who helped me with this situation, who is very good with musicians and self-employed people).

You probably don't owe anything at all unless you made millions, but you DO need to file their form every year or they'll start sending you bills with constantly growing fines. So don't ignore it, but don't fret too much, either. It may take you and/or your accountant a few calls and letters to resolve, but it can be resolved.
posted by Scram at 11:27 PM on September 5, 2007

Thanks. It's good to know that the person to whom I should be speaking is an accountant, for starters... and I'm commencing with the non-freaking-out-ness now. Scram: emailing you now. :)
posted by the_bone at 6:47 PM on September 6, 2007