Los Angeles

๐Ÿ’ต

Taxes

An overview of local and federal income taxes, sales taxes, and property taxes applicable in Los Angeles.

Sections

A. Income Tax

  1. Federal Income Tax:

    • Administered by the Internal Revenue Service (IRS).
    • Progressive tax rates ranging from 10% to 37% depending on income brackets.
    • Applies to all U.S. residents and citizens, as well as non-residents earning income in the U.S.

  2. California State Income Tax:

    • Administered by the California Franchise Tax Board (FTB).
    • Progressive tax rates ranging from 1% to 13.3%, the highest in the U.S.
    • Applies to all income earned by California residents and income sourced from California for non-residents.

  3. Local Income Tax:

    • Los Angeles does not impose a local income tax.

  4. Filing Requirements:

    • Federal and state income taxes must be filed annually.
    • Non-residents and immigrants may need to file if they earn income in the U.S. or California.

B. Sales Tax

  1. Base Sales Tax:

    • The combined sales tax rate in Los Angeles is 9.5% (as of 2023). This includes:
      • 6% state sales tax.
      • 1.25% local tax.
      • Additional district taxes for Los Angeles County.

  2. What is Taxed?:

    • Most goods and some services are subject to sales tax.
    • Groceries and prescription medications are exempt.

  3. Unique Considerations:

    • Be mindful of district-specific taxes within Los Angeles County, which may slightly increase the rate in certain areas.

C. Property Tax

  1. Overview:

    • Property taxes in Los Angeles are based on the assessed value of the property.
    • The average effective property tax rate in Los Angeles County is approximately 0.73% of the assessed value.

  2. Proposition 13:

    • Limits annual increases in assessed property value to 2% unless the property is sold or significantly improved.

  3. Filing and Payment:

    • Property taxes are billed twice a year (November 1 and February 1) and are due by December 10 and April 10, respectively.

D. Vehicle Taxes

  1. Vehicle Registration Fees:

    • Administered by the California Department of Motor Vehicles (DMV).
    • Fees include a base registration fee, a vehicle license fee (VLF), and additional county/district fees.
    • Costs vary based on the vehicle's value and weight.

  2. Sales Tax on Vehicle Purchases:

    • Sales tax applies to vehicle purchases at the same rate as other goods (9.5% in Los Angeles).

E. Other Taxes

  1. Hotel Tax (Transient Occupancy Tax):

    • Visitors staying in hotels, motels, or short-term rentals in Los Angeles are subject to a 14% transient occupancy tax.

  2. Business Taxes:

    • Businesses operating in Los Angeles must register with the city and pay a gross receipts tax, which varies by industry.

  3. Utility Taxes:

    • Utility services (electricity, gas, water, and telecommunications) are subject to a 10% utility user tax in Los Angeles.

3. Filing Procedures

A. Federal and State Income Tax Filing

  1. How to File:

    • File federal taxes through the IRS using Form 1040 (or Form 1040-NR for non-residents).
    • File California state taxes through the Franchise Tax Board using Form 540 (or Form 540NR for non-residents).

  2. Methods:

    • Online: Use IRS Free File, tax software (e.g., TurboTax, H&R Block), or hire a tax professional.
    • Paper Filing: Mail completed forms to the IRS and FTB.

  3. Documents Needed:

    • W-2 (for employees) or 1099 (for contractors).
    • Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
    • Proof of deductions and credits (e.g., mortgage interest, student loan interest, childcare expenses).

  4. Deadlines:

    • Federal and state income tax returns are due by April 15 (or the next business day if it falls on a weekend/holiday).
    • Extensions can be requested, but taxes owed must still be paid by the deadline to avoid penalties.

B. Property Tax Filing

  1. How to Pay:

    • Payments can be made online, by mail, or in person to the Los Angeles County Treasurer and Tax Collector.
    • Property owners receive a bill with payment instructions.

  2. Deadlines:

    • First installment: Due by December 10.
    • Second installment: Due by April 10.

C. Business Tax Filing

  1. Registration:

    • Businesses must register with the City of Los Angeles Office of Finance.
    • Registration is free, but taxes are based on gross receipts.

  2. Filing:

    • Annual business tax renewals are due by February 28.

4. Local Considerations

A. Cost of Living and Taxes

  • Los Angeles has a high cost of living, and taxes contribute significantly to expenses.
  • Plan for higher income and sales taxes compared to other U.S. cities.

B. Tax Credits and Deductions

  1. Federal Credits:

    • Earned Income Tax Credit (EITC) for low-income earners.
    • Child Tax Credit for families with children.
    • Education credits (e.g., American Opportunity Credit, Lifetime Learning Credit).

  2. California State Credits:

    • California Earned Income Tax Credit (CalEITC) for low-income residents.
    • Rentersโ€™ Credit for qualifying renters.

C. Immigrants and Non-Residents

  • Immigrants and non-residents may need to file taxes if they earn income in the U.S.
  • Obtain an ITIN if you do not qualify for an SSN.
  • Check tax treaties between the U.S. and your home country to avoid double taxation.

5. Deadlines and Penalties

  1. Income Tax Deadlines:

    • Federal and state taxes: April 15.
    • Extensions: File Form 4868 for federal taxes and Form FTB 3519 for California taxes.

  2. Penalties:

    • Late filing: 5% of unpaid taxes per month (up to 25%).
    • Late payment: 0.5% of unpaid taxes per month.

  3. Property Tax Deadlines:

    • Missed payments incur a 10% penalty.

6. Resources and Assistance

  1. IRS:

  2. California Franchise Tax Board:

  3. Los Angeles County Treasurer and Tax Collector:

  4. Free Tax Assistance:

    • Volunteer Income Tax Assistance (VITA) for low-income individuals.
    • Tax Counseling for the Elderly (TCE) for seniors.

7. Unique Aspects of Los Angeles Taxes

  • High Tax Rates: Californiaโ€™s income tax rates are among the highest in the U.S.
  • Entertainment Industry: Special tax considerations may apply to those working in the entertainment sector.
  • Green Initiatives: Tax incentives for electric vehicles and solar energy installations are available.

By understanding these tax categories, procedures, and deadlines, you can better navigate the tax system in Los Angeles and ensure compliance while maximizing potential savings.