The Cost of Business

A few weeks ago, I received a lovely notice, called Form AB63, from the City of LA’s Office of Finance, saying that I owed nearly $800 in fees and taxes for doing business in the county.

Fortunately, this situation looked worst than it actually was.

I called the Office of Finance’s customer service, only to be told through a pre-recorded message that they were “experiencing extraordinarly high call volume.” But within a few minutes, a friendly city employee called back and walked me through the process.

What I discovered will be particularly useful for freelancers doing business in LA.

The short version, because a longer explanation is boring:

  • You have to register as a business in LA, even if you are a freelancer working in artistic fields. Otherwise, you’ll face mounting fees. Registration can be done online.
  • Each year, you must let the city know what your gross income was.
  • Form AB63 was probably automatically triggered and sent because a past client of mine filed a 1099.
  • If you make less than $100,000, then you are exempt from most, if not all, taxes.
  • The employee I spoke with matched the reference number from Form AB63, with my newly created business account number. This means I should be off the hook for any additional fees.
  • I owed only $28, instead of $800, and that small fee only resulted from my failure to report income and register as a business in 2015.

Naturally, Reddit users have commented on the apparently infamous AB63 notice. User consistentstrength sums it up nicely:

[Form AB63] is the nastygram sent out by the City of Los Angeles. They send them out every year. If you’re self employed or paid via 1099, you need to register with the city finance office. You can probably get an exemption since you didn’t make much money.

LLCs vs Proprietorships

As I continue developing my freelance filmmaking career, I’ve learned more about the business side of things than I’d imagine. Most pertinently, many fellow freelancers wonder, is it worth forming an LLC or registering as a proprietor? Here’s what I discovered, in large part from a recent conversation I had with a business lawyer.

You already are a propietorship if you’re doing freelance work. When you register as a business in LA (see above), just use your name as your business’ name. There’s no need to register with the state as a propietorship.

Forming an LLC primarily mitigates your risk of losing property, if a client sues you. An LLC is taxed as a sub-chapter of an S Corporation, so you must pay the State of California Franchise Tax Board $800 every year. This doesn’t include the $1,200–1,600 attourney fees that come with each renewal.

So it’s only worth forming an LLC if you make a significant amount of money (to pay the fees) and own a significant amount of property (expensive things you’re at risk of losing). If you are just providing a service—in my case, as a cinematographer or a camera intern/assistant—there isn’t nearly the same amount of risk involved, so you should probably just remain a sole proprietor.

NB: If there’s any other information you’ve discovered, or which you think I should include, please let me know, and I’ll update this page.