Self-Employment Tax in Los Angeles

You pay the standard federal self-employment tax of 15.3% on your net earnings — that part is the same whether you live in Los Angeles, New York, or rural Montana. What makes LA different is the stack of California state taxes on top. Let’s break down the full picture so you know exactly what you’re dealing with.

Federal self-employment tax basics. The 15.3% SE tax rate applies to 92.35% of your Schedule C net profit (the IRS gives you a small haircut before calculating the tax). That 15.3% is split between 12.4% for Social Security and 2.9% for Medicare. For 2025, the Social Security portion applies only to the first $168,600 of net self-employment earnings. Once you pass that ceiling, you stop paying the 12.4% Social Security piece, but the 2.9% Medicare tax has no cap — it applies to every dollar. And if your total income exceeds $200,000 (single) or $250,000 (married filing jointly), you owe an Additional Medicare Tax of 0.9%, pushing the Medicare rate to 3.8% on income above those thresholds.

On $150,000 of net Schedule C profit, here’s the SE tax math: $150,000 x 92.35% = $138,525 (your SE tax base). Social Security: $138,525 x 12.4% = $17,177. Medicare: $138,525 x 2.9% = $4,017. Total SE tax: $21,194. You can deduct half of that ($10,597) on your Form 1040 to reduce your adjusted gross income, which helps lower your income tax.

Federal income tax. After the half-SE-tax deduction and the standard deduction ($15,000 for single filers in 2025), your remaining income is taxed at the federal brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. On $150,000 of freelance income, after deductions, you’d land in the 24% bracket for your top dollars, with a federal income tax bill of roughly $20,000-$22,000.

California state income tax — the big one. California has some of the highest state income tax rates in the country, with a top marginal rate of 13.3% on income above $1,000,000. But you don’t need to be a millionaire to feel the pinch. The brackets that matter for most LA freelancers are: 6% on income from $40,769 to $57,824. 8% on income from $57,824 to $295,373. 9.3% on income from $295,373 to $354,445. 10.3% on income from $354,445 to $590,742. 11.3% on income from $590,742 to $1,000,000.

On $150,000 of taxable income (after California’s standard deduction of $5,540 for single filers), your California tax would be approximately $10,200-$10,800. That’s significantly more than most states charge — for comparison, Florida and Texas charge zero, and even New York State’s rate at that income level is lower.

California’s Mental Health Services Tax. Income above $1,000,000 gets hit with an additional 1% surcharge under Proposition 63, the Mental Health Services Act. This brings the top rate to 13.3% for millionaire earners. While most LA freelancers won’t hit this, it’s worth knowing about if you’re on a growth trajectory.

No city income tax in LA. Unlike New York City, Los Angeles does not impose a city income tax. This is one genuine advantage of freelancing in LA versus NYC. You won’t face an extra 3.876% city tax on top of everything else. However, LA has other local taxes and fees that can affect business owners, including the Los Angeles Business Tax (more on that below).

Los Angeles Business Tax. The City of LA imposes a gross receipts tax on businesses operating within city limits. For most service-based freelancers, the rate is approximately $5.07 per $1,000 of gross receipts (though rates vary by business category). On $150,000 of gross receipts, that’s about $760. There’s a small-business exemption for businesses with gross receipts below certain thresholds, and the city has been phasing down rates in recent years. You register for the LA Business Tax through the Office of Finance and file an annual return.

The total tax burden. Putting it together for a single LA freelancer with $150,000 in net Schedule C profit: Federal SE tax: ~$21,194. Federal income tax: ~$21,000. California state income tax: ~$10,500. LA Business Tax: ~$760. Total: approximately $53,454, or an effective rate of about 35.6%. Bump that income to $250,000 and the effective rate climbs to roughly 39-41% as you push into higher federal and state brackets plus the Additional Medicare Tax.

Compare that to a NYC freelancer at the same income level, where the total effective rate is about 38-40% (higher because of the city income tax and UBT, despite the slightly lower state rates). LA is a bit cheaper overall, but not by as much as you might expect — California’s high state rates close most of the gap that the lack of a city income tax creates.

California Franchise Tax Board minimums. California also imposes an $800 annual minimum franchise tax on LLCs, regardless of income. If you’ve formed an LLC for your freelance business, you owe this $800 even in years when you lose money. It’s due by April 15. Sole proprietors without an LLC don’t owe this, but if you’re considering forming an LLC for liability protection, factor the $800 annual cost into your decision. For more on structuring your LA freelance business to minimize taxes, see our guide on tax deductions for self-employed in Los Angeles.

The SDI factor. California also requires self-employed individuals to consider State Disability Insurance (SDI). While SDI is mandatory for W-2 employees (at a rate of 1.1% on wages up to $153,164 in 2025), self-employed individuals can opt into the program voluntarily through an Elective Coverage agreement with the EDD (Employment Development Department). If you opt in, you pay the SDI premiums yourself and gain access to disability benefits and Paid Family Leave. Most freelancers skip this, but if you’re planning a family or want disability coverage, it’s worth considering as both a cost and a potential benefit.

How quarterly estimated payments work in California. California uses a different estimated tax payment schedule than the IRS. Instead of four equal payments, California requires: 30% by April 15, 40% by June 15, 0% by September 15 (nothing due), and 30% by January 15. This front-loads your payments compared to the federal schedule. So if your total California tax liability is $10,500, you’d pay $3,150 in April, $4,200 in June, nothing in September, and $3,150 in January. Use Form 540-ES to submit these payments to the Franchise Tax Board. Many freelancers set up automatic payments through the FTB’s Web Pay system to avoid missing the unusual schedule.

No. Self-employment tax is a purely federal tax — it’s the mechanism through which self-employed people pay into Social Security and Medicare, and it’s administered entirely by the IRS. California does not impose its own version of self-employment tax. However, that doesn’t mean California gives freelancers a free pass. The state captures its share of your earnings through several other channels, and the combined burden can feel just as heavy.

What California does charge instead. While there’s no state-level SE tax, California taxes your self-employment income through its personal income tax, which tops out at 13.3% — the highest state income tax rate in the nation. Every dollar of net profit from your freelance business flows through to your California return (Form 540) and gets taxed at whatever marginal rate applies to your income level. For a freelancer earning $120,000, the marginal state rate is 8%, and the effective state rate is roughly 6-7%.

On top of the income tax, California has other taxes and fees that hit the self-employed: The LLC fee — if you’ve organized your business as an LLC, California charges an annual $800 minimum franchise tax plus an additional fee based on gross income. LLCs with gross income between $250,000 and $499,999 pay an extra $900. Between $500,000 and $999,999, the fee jumps to $2,500. Between $1,000,000 and $4,999,999, it’s $6,000. And above $5,000,000, the fee is $11,790. These fees are based on total California-source gross income, not net profit, so they can bite even in years when your net profit is relatively low.

The Los Angeles Business Tax — this is a city-level gross receipts tax that applies to businesses operating in LA. Most professional service providers pay approximately $5.07 per $1,000 of gross receipts. It’s a relatively small amount, but it’s another line item on top of everything else.

California’s treatment of the federal SE tax deduction. On your federal return, you get to deduct half of your self-employment tax as an adjustment to income on Form 1040. This is often called the “employer-equivalent”. Portion of SE tax. California conforms to this federal deduction, meaning it’s also subtracted from your California AGI when computing your state taxable income. So the half-SE-tax deduction does reduce your California income tax, even though California doesn’t have its own SE tax.

State Disability Insurance (SDI). California’s SDI program is funded through a payroll tax on W-2 employees, but self-employed individuals aren’t automatically enrolled. You can opt into the program by filing an Elective Coverage application with the Employment Development Department (EDD). If you opt in, you pay the SDI rate (1.1% in 2025, with no wage ceiling starting in 2024) on your net self-employment income. In exchange, you become eligible for disability benefits and California’s Paid Family Leave program. This isn’t technically a “self-employment tax,”. But it functions like one if you elect coverage — it’s a percentage-based levy on your self-employment earnings that goes to a government program.

Why the distinction matters. Understanding that SE tax is federal-only helps you plan more effectively. When you’re calculating how much to set aside for quarterly estimated payments, you need to account for SE tax in your federal estimates (Form 1040-ES) but not in your California estimates (Form 540-ES). California estimated payments only cover your state income tax liability. Some freelancers accidentally double-count SE tax in their state estimates, leading to overpayment and a refund that could have been earning interest in their savings account all year.

How it compares to other states. A handful of states have experimented with payroll-style taxes that function similarly to SE tax. New Jersey, for instance, has a self-employment tax component through its disability and unemployment insurance programs. New York has the MCTMT (Metropolitan Commuter Transportation Mobility Tax) for self-employed individuals in the MTA district. California has none of these. But California’s high income tax rates more than compensate — a California freelancer earning $200,000 pays roughly $14,000 in state income tax, compared to about $10,800 in New York State income tax at the same level. The lack of a separate SE-style state tax is small consolation when the income tax rate is 8-9.3% on most of your earnings.

The bottom line for LA freelancers. Your self-employment tax check goes to the IRS and only the IRS. But don’t let that fool you into thinking California is tax-friendly for freelancers. Between the high income tax rates, the LLC fee, and the LA Business Tax, California takes a significant cut of your earnings through other channels. The key to managing it is accurate quarterly estimated payments — underpaying California estimates triggers a penalty from the Franchise Tax Board, which charges interest at a rate that’s currently around 7% annually. For help calculating your total federal and California tax obligation, see our overview of self-employment tax in Los Angeles.

Practical planning tip. Since federal SE tax and California income tax are paid to different agencies on different forms, it helps to think of your tax obligation in two columns. Column one is everything going to the IRS: federal income tax plus SE tax, paid quarterly via Form 1040-ES. Column two is everything going to California: state income tax, paid quarterly via Form 540-ES, plus the LLC fee (if applicable, paid annually), plus the LA Business Tax (paid annually to the city). Keep separate running tallies for each column throughout the year.

A freelance marketing consultant in LA earning $180,000 net profit might break it down like this: Federal SE tax — roughly $24,700. Federal income tax — roughly $26,000. That’s about $50,700 to the IRS, or $12,675 per quarter. California income tax — roughly $12,200. LLC fee — $800 minimum plus possible gross receipts fee. LA Business Tax — roughly $915. That’s about $13,915 to California entities, with the income tax portion paid quarterly ($3,660 in April, $4,880 in June, $0 in September, $3,660 in January under California’s unusual 30/40/0/30 schedule). Keeping these separate makes it much easier to verify you’ve sent the right amount to the right place at the right time.

California uses a non-standard estimated tax payment schedule that trips up a lot of freelancers, especially those who’ve moved from another state or who are making estimated payments for the first time. Instead of the even 25/25/25/25 split that the IRS uses for federal estimated taxes, California requires 30% in the first installment, 40% in the second, nothing in the third, and 30% in the fourth. Here’s the full breakdown with dates and what happens when you get it wrong.

The California schedule. For the 2025 tax year: Q1 — April 15, 2025: 30% of your estimated annual California income tax. Q2 — June 15, 2025: 40% of your estimated annual California income tax. Q3 — September 15, 2025: $0 (no payment required). Q4 — January 15, 2026: 30% of your estimated annual California income tax. Compare that to the federal schedule, where you pay 25% on April 15, 25% on June 15, 25% on September 15, and 25% on January 15. The California schedule front-loads your payments, with 70% due by mid-June versus only 50% for federal.

Let’s put numbers on it. A freelance videographer in LA expects to owe $14,000 in California income tax for the year. Her quarterly payment schedule looks like this: April 15: $4,200 (30%). June 15: $5,600 (40%). September 15: $0. January 15: $4,200 (30%). For federal, if she expects to owe $48,000 combined (income tax + SE tax), she’d pay $12,000 each quarter. So in April, she’s sending out $16,200 total ($12,000 federal + $4,200 California). In June, it’s $17,600 ($12,000 + $5,600). In September, only $12,000 (federal only). And in January, $16,200 again. That’s a significant swing in cash outflow across quarters, and you need to plan your cash reserves so.

Why California does it differently. The unusual schedule dates back to California’s budget challenges. By front-loading the payments, the state receives more revenue earlier in its fiscal year, which helps with cash flow management. It’s been this way for decades and there’s no indication it will change. Some states use similar non-standard schedules (New York, for instance, uses the federal 25/25/25/25 split but requires more in certain situations), but California’s 30/40/0/30 structure is among the most unusual.

How to make the payments. You use California Form 540-ES to calculate and submit your estimated payments. The easiest payment method is through the Franchise Tax Board’s Web Pay system (webapp.ftb.ca.gov), where you can schedule payments from your bank account with no processing fee. You can also pay by credit card (processing fees apply, typically 2.3%), by check mailed with a 540-ES voucher, or through the CalFile system.

The safe harbor rules. To avoid California’s underpayment penalty, you need to pay either: 100% of your prior-year California tax liability (divided using the 30/40/0/30 split), OR 90% of your current-year tax liability (also using the 30/40/0/30 split). If your California AGI exceeded $150,000 in the prior year ($75,000 for married filing separately), the safe harbor bumps to 110% of the prior year’s tax. This is identical to the federal safe harbor structure, just applied to the different payment schedule.

For example, if your 2024 California tax was $12,000 and your 2024 AGI was below $150,000, your 2025 safe harbor payments would be: April: $3,600 (30% of $12,000). June: $4,800 (40% of $12,000). September: $0. January: $3,600 (30% of $12,000). As long as you hit those amounts by those dates, no penalty — even if your actual 2025 tax ends up being $18,000.

Underpayment penalties. If you don’t make sufficient estimated payments, the Franchise Tax Board charges an underpayment penalty calculated on Form 5805 (Underpayment of Estimated Tax by Individuals and Fiduciaries). The penalty rate is currently about 7% annually, computed on a daily basis from the date the installment was due until it’s paid (or until the April 15 filing deadline, whichever comes first). The penalty applies separately to each installment period, so even if you overpay in January to catch up, you’ll still owe a penalty for the underpayment in April and June.

Here’s a concrete example. If you owed $4,200 for the April 15 installment but paid nothing until June 15, the penalty would be roughly $4,200 x 7% x (61 days / 365 days) = $49. Not a devastating amount, but multiply that across multiple underpaid installments and it adds up. More the FTB is aggressive about assessing these penalties — they’re automatically calculated when you file your return, and they don’t typically waive them without a very good reason (natural disaster, documented illness, etc.).

The annualization exception. If your income is lumpy — say you land a huge project in Q3 but earn very little in Q1 and Q2 — you can use the annualized income installment method to adjust your quarterly payments based on actual income earned in each period. This is calculated on Schedule AI of Form 5805. It’s more complicated than the standard method, but it can save you from having to make large payments early in the year when you haven’t yet earned the income to support them.

Coordinating federal and state payments. Because the federal and California schedules differ, many LA freelancers find it helpful to create a payment calendar that shows both sets of due dates and amounts side by side. Here’s a template: April 15 — Federal 1040-ES (25% of federal estimate) + California 540-ES (30% of state estimate). June 15 — Federal 1040-ES (25%) + California 540-ES (40%). September 15 — Federal 1040-ES (25%) + California 540-ES ($0). January 15 — Federal 1040-ES (25%) + California 540-ES (30%).

Set calendar reminders two weeks before each date. If you use a payroll service for an S-Corp, the payroll provider handles the employer portions automatically, but you still need to make estimated payments on the S-Corp distribution income that flows through to your personal return.

One more thing. California estimated payments are separate from the $800 LLC minimum franchise tax, which is due April 15 regardless of your estimated tax schedule. If you have an LLC, that’s another payment to the FTB on the same date as your first estimated installment. Don’t confuse the two — they’re paid on different vouchers and reported differently. For help setting up your payment calendar, our tax planning team can map out exactly what you owe and when.

Generally yes, if your net self-employment income consistently exceeds $80,000 to $100,000 per year. The S-Corp election lets you split your business income between a reasonable salary (which is subject to payroll taxes) and distributions (which are not), and the payroll tax savings on the distribution portion can be substantial. But California adds some extra costs that change the math compared to other states, so let’s go through the whole calculation.

How the S-Corp saves on SE tax. As a sole proprietor, every dollar of net profit is hit with the 15.3% self-employment tax. With an S-Corp, you pay yourself a W-2 salary and take the rest as a distribution. Only the salary portion is subject to the 7.65% employee share of FICA plus the 7.65% employer share. The distribution escapes FICA entirely. On $150,000 of net business income, if you pay yourself a $75,000 salary and take $75,000 as a distribution, you save the 15.3% SE tax on that $75,000 distribution — that’s $11,475 in annual savings.

But wait — it’s not quite that simple. The employer’s share of FICA (7.65% on the salary) is a deductible business expense, which reduces your taxable income. And you need to factor in the additional costs of operating as an S-Corp. Let’s walk through the California-specific cost structure.

California’s $800 LLC/S-Corp minimum franchise tax. Every LLC and corporation registered in California owes an annual $800 minimum franchise tax to the Franchise Tax Board. If you’re already operating as an LLC (which many freelancers are), you’re already paying this. But if you’re a sole proprietor considering the S-Corp election, this $800 is a new annual cost. It’s due by April 15 of each year, and it applies even in years when the business loses money. New LLCs get a first-year exemption, but after that, the $800 is non-negotiable.

California’s LLC fee based on gross income. Here’s a wrinkle that catches a lot of people: if your business is structured as an LLC that elects S-Corp tax treatment, California still imposes the LLC fee based on total California-source gross income. The fee tiers are: $0 for gross income under $250,000. $900 for gross income $250,000 to $499,999. $2,500 for gross income $500,000 to $999,999. $6,000 for gross income $1,000,000 to $4,999,999. $11,790 for gross income above $5,000,000. This fee is based on gross income (total revenue), not net profit. A freelancer with $300,000 in gross revenue but $150,000 in expenses (net profit of $150,000) still pays the $900 fee because gross income exceeded $250,000. If you form a corporation (C-Corp or S-Corp) instead of an LLC electing S-Corp status, this fee doesn’t apply — but then you lose the liability protection flexibility of the LLC structure.

Payroll costs. Running payroll for yourself means paying for a payroll service. Gusto, ADP Run, or QuickBooks Payroll typically cost $40-$80 per month for a single-employee payroll ($480-$960 per year). The payroll service handles calculating withholdings, filing quarterly payroll tax returns (Form 941 federally, DE 9/DE 9C for California’s EDD), issuing your W-2 at year-end, and remitting payroll taxes to the IRS and California.

California adds state-specific payroll taxes that don’t exist in every state: State Disability Insurance (SDI) — 1.1% of wages with no cap starting in 2024. On a $75,000 salary, that’s $825 per year. Employment Training Tax (ETT) — 0.1% on the first $7,000 of wages, so a maximum of $7 per year. State Unemployment Insurance (SUI) — rates vary by employer experience rating, but new employers typically pay 3.4% on the first $7,000 of wages, or $238 per year.

Additional tax preparation costs. An S-Corp files its own tax return — Form 1120-S federally and Form 100S for California. This is separate from your personal return. Most CPAs charge $1,500 to $3,000 to prepare an S-Corp return on top of the personal return fee. If you were paying $800 for a sole proprietor return with Schedule C, your total preparation costs might jump to $2,500 to $4,000 once you add the S-Corp return.

Workers’. Compensation insurance. California requires all employers — including S-Corps with a single employee-owner — to carry workers’. Compensation insurance. For office-based professional services, the annual premium typically runs $500 to $1,500 depending on the classification code and your payroll amount.

Running the full cost-benefit analysis. Let’s put it all together for an LA freelancer with $150,000 in net business income, paying a $75,000 salary: SE tax savings on $75,000 distribution: $11,475. Minus S-Corp costs: $800 franchise tax + $960 payroll service + $825 SDI + $238 SUI + $1,500 additional CPA fees + $800 workers’. Comp = $5,123 in total S-Corp costs. Net benefit: $11,475 – $5,123 = $6,352 per year. That’s meaningful — enough to fund an IRA contribution or a decent vacation.

At $200,000 of net income with a $90,000 salary, the savings grow larger: $16,830 in SE tax savings minus roughly $5,500 in costs = $11,330 net benefit. At $100,000 of net income with a $60,000 salary, it’s tighter: $6,120 in savings minus $4,800 in costs = $1,320 net benefit. And at $75,000, the savings may not justify the hassle — you’re looking at break-even or a slight loss after compliance costs.

When not to do it. The S-Corp doesn’t make sense if your income is volatile and drops below $80,000 in some years, because the fixed costs remain even when savings are minimal. It also doesn’t make sense if you have significant net operating losses to carry forward, because S-Corp losses flow through differently than Schedule C losses. And if you’re building Social Security credits (you need 40 quarters of coverage for eligibility), reducing your salary reduces your Social Security earnings record.

The California-specific takeaway. California’s extra costs — the $800 minimum franchise tax, the LLC fee on gross income, the SDI payroll tax, and mandatory workers’. Comp — mean the S-Corp break-even point is higher in California than in states like Florida or Texas where there’s no state income tax or mandatory disability insurance. But for LA freelancers consistently earning $100,000+ per year, the math still works out in favor of the S-Corp. Talk to a tax advisor before making the election to run the numbers on your specific situation.

Yes, if you have a dedicated area in your home that you use regularly and exclusively for business. The home office deduction is one of the most valuable write-offs available to LA freelancers because rents in Los Angeles — especially in neighborhoods like West Hollywood, Santa Monica, Silver Lake, and DTLA — are steep enough that even a small percentage allocation produces a meaningful tax deduction.

The IRS requirements. To claim the home office deduction, you must meet two tests. First, the regular use test: you use the space on a consistent basis for business, not just occasionally. Second, the exclusive use test: the area you’re claiming is used only for business, not also as a living space. So if your “home office”. Is your kitchen table, that doesn’t qualify. But if you’ve set up a desk and monitor in a corner of your bedroom that you use solely for work, that corner qualifies. You don’t need a separate room — just a defined area that’s dedicated to business.

There’s also a requirement that the home office be your principal place of business OR a place where you regularly meet clients. For most LA freelancers who work from home and meet clients elsewhere, the principal-place-of-business test is the relevant one. If you do substantially all of your administrative or management work at home and don’t have another fixed location where you do this work, your home office qualifies as your principal place of business — even if you also perform services at client sites or other locations.

Calculating the deduction — regular method. Under the regular method (which produces a larger deduction than the simplified method for most LA freelancers), you calculate the percentage of your home used for business and apply it to your housing expenses. Measure the square footage of your office area, divide by the total square footage of your apartment or house, and that’s your business-use percentage.

Example: You rent a 900-square-foot apartment in Koreatown for $2,200 per month. Your office area is 120 square feet. Business-use percentage: 120 / 900 = 13.3%. Now apply that to your expenses: Rent: $2,200 x 12 = $26,400 x 13.3% = $3,511. Renter’s insurance: $400/year x 13.3% = $53. Electricity: $1,440/year x 13.3% = $192. Internet: $1,080/year x 13.3% = $144. Gas/heat: $480/year x 13.3% = $64. Total home office deduction: approximately $3,964. On a $2,200 rent that might seem modest, but over the year those deductions save you real money in taxes. At a combined marginal tax rate of 38% (federal + California + SE tax), a $3,964 deduction saves about $1,506 in actual tax.

Now scale it up. A freelancer renting a two-bedroom in Venice for $3,800/month with a 150-square-foot dedicated office in a 1,100-square-foot apartment (13.6% business use) would deduct: Rent: $45,600 x 13.6% = $6,202. Plus utilities and insurance, the total deduction could exceed $7,000 — saving over $2,600 in tax.

Simplified method. The IRS also offers a simplified home office deduction of $5 per square foot, up to 300 square feet ($1,500 maximum). This is easier — no need to track utility bills or insurance — but $1,500 is a tiny deduction relative to LA housing costs. The regular method almost always produces a larger deduction in Los Angeles. The only scenario where the simplified method might make sense is if your home office is very small (under 50 square feet) and your rent is low — neither of which describes most LA freelancers.

Reporting it. You calculate the home office deduction on Form 8829 (Expenses for Business Use of Your Home) and the result flows to your Schedule C as a business deduction. This reduces your net self-employment income, which in turn reduces every tax that’s calculated on that income: federal income tax, self-employment tax, California state income tax, and the LA Business Tax (since the LA Business Tax is based on gross receipts, the home office deduction doesn’t directly reduce it — but it reduces your income tax exposure).

California conformity. California generally conforms to the federal treatment of the home office deduction. If you claim it on Schedule C for your federal return, it flows through to your California Form 540 return without additional adjustments. There’s no separate state form for the home office deduction — the Schedule C amount is the same for both federal and state purposes.

For homeowners. If you own your LA home (a condo, house, or townhome), the home office deduction can be even more valuable. In addition to the expenses available to renters (utilities, insurance), homeowners can also deduct the business-use percentage of: Mortgage interest (though this may already be itemized on Schedule A). Property taxes (again, watch for the $40,000 SALT cap interaction). Depreciation of the home (calculated on the business-use percentage of the home’s basis, excluding land value). HOA fees (for condo owners).

The depreciation component deserves a note: while deducting depreciation saves you tax now, it creates a “recapture”. Event when you sell the home — you’ll owe tax on the accumulated depreciation at a rate of up to 25%. This doesn’t make depreciation a bad idea (the time value of the tax savings usually outweighs the recapture cost), but you should be aware of it.

Common mistakes LA freelancers make. Forgetting about the exclusive use test — if your desk doubles as a dining table or your office room has a guest bed, the IRS can disallow the deduction. Failing to measure accurately — get actual square footage measurements, not estimates. Using the simplified method without comparing it to the regular method — you’re likely leaving money on the table. Not keeping photos of the workspace — in an audit, photos showing a dedicated work area are powerful evidence. And not claiming the deduction at all because they’ve heard “the home office deduction triggers audits.” While it’s true that the home office deduction historically drew IRS scrutiny, audit rates for small businesses have dropped significantly in recent years due to IRS budget constraints, and the deduction is perfectly legitimate when you meet the requirements. Don’t leave money on the table out of fear.

What about coworking spaces? If you pay for a coworking space or dedicated desk in LA (WeWork, Industrious, Second Home, etc.), those costs are deductible as rent expense on Schedule C — you don’t need Form 8829 for that. But you can’t then also claim a home office deduction unless your home office is a separate, qualifying space where you do different work. You can’t double-dip on the same work activity. If you work exclusively from a coworking space, the home office deduction doesn’t apply, but your coworking fees are fully deductible as business rent. For more deductions available to LA freelancers, check our complete guide to tax deductions for self-employed in Los Angeles.

No — Los Angeles does not have a city income tax, and neither does any other city in California. California state law does not permit municipalities to impose their own income taxes on residents or workers. So as a freelancer living and working in LA, you owe federal income tax and California state income tax, but there is no additional city-level income tax. This is a genuine advantage compared to cities like New York, where residents pay New York City income tax on top of New York State income tax — a combined city and state burden that can add roughly 14% to your marginal rate.

That said, “no city income tax”. Does not mean LA is cheap for freelancers from a tax perspective. California’s state income tax rates are among the highest in the country: 13.3% at the top bracket (on income over $1 million) and 12.3% at the next tier (on income roughly between $698,000 and $1 million for single filers). Even at more moderate income levels, a freelancer earning $150,000 in LA is paying a California marginal rate of 9.3%, which is higher than the top rate in most states. So while there is no city tax to worry about, the state rate more than compensates.

The lack of a city income tax is sometimes confused with the Los Angeles Business Tax, which is a different animal entirely. The City of Los Angeles imposes a gross receipts tax on businesses operating within city limits, including sole proprietors and freelancers. The rate varies by business category but is typically between 0.1% and 0.5% of gross receipts (not net income — gross revenue). For most freelancers, this is a relatively small amount — a freelancer with $200,000 in gross receipts might owe $300 to $1,000 in business tax depending on their classification. It is technically a business tax, not an income tax, and it is based on revenue rather than profit.

The LA Business Tax has an exemption threshold: if your gross receipts are below a certain amount (currently around $100,000 for most tax classifications, though it varies), you may be exempt from filing. But even if you are exempt from the tax itself, you may still need to register for a Business Tax Registration Certificate (sometimes called a business license) with the City of Los Angeles. Many freelancers operating in LA do not realize they need this registration and discover it years later, sometimes with back-taxes and penalties. If you are freelancing in LA and earning meaningful income, check whether you need to register with the LA Office of Finance.

Other cities within the broader LA metro area have their own business tax rules as well. Santa Monica, Beverly Hills, Burbank and other incorporated cities each set their own business tax rates and thresholds. If you live in one of these cities rather than in the City of Los Angeles proper, you would owe that city’s business tax instead of (or in some cases in addition to) the LA business tax. The rates and exemptions vary. Some are trivially small. Others can add up if your revenue is substantial.

For freelancers who work from home in LA, the business tax question depends on where you are physically located, not where your clients are. If you live and work in the City of LA, the LA Business Tax applies to your gross receipts. If you live in unincorporated LA County (areas not within any city boundary), there is typically no municipal business tax at all — just the state and federal layers. Knowing exactly which municipality you live in matters for this reason.

When people compare LA to NYC for freelancers, the city tax difference is significant. A freelancer earning $300,000 in NYC pays approximately $11,600 in New York City income tax on top of roughly $23,000 in New York State income tax. That same freelancer in LA pays approximately $25,000 in California state income tax and maybe $500 to $1,500 in LA Business Tax. The net difference is roughly $9,000 to $10,000 per year in favor of LA — almost entirely because of NYC’s city income tax, which ranges from 3.078% to 3.876% depending on income level.

However, that comparison flips if you include property costs and other living expenses. LA and NYC are both extremely expensive cities, and the tax savings from avoiding a city income tax can be offset by other costs. The comparison also changes if you factor in the specific deductions available in each state: New York allows an itemized deduction for state income taxes on the state return (limited by SALT), while California uses its own standard/itemized deduction system with different thresholds and phase-outs.

For California freelancers, the self-employment tax situation is the same regardless of which city you live in. You owe 15.3% in Social Security and Medicare taxes on net self-employment income up to the Social Security wage base ($176,100 for 2024, adjusted annually), and 2.9% Medicare plus 0.9% Additional Medicare Tax on income above $200,000. These federal payroll taxes are the same in LA, San Francisco, San Diego, or anywhere else. The decision to elect S-corp status to reduce self-employment taxes is driven by federal and state considerations, not by anything at the city level.

Bottom line: LA freelancers do not pay a city income tax, which is a genuine advantage over NYC-based freelancers. But you may owe the LA Business Tax on gross receipts (a much smaller amount), and California’s state income tax rates are high enough that the overall tax burden is still substantial. If you are not sure whether you need to register for the LA Business Tax or how your overall tax picture compares across cities, The Reed Corporation can help you sort it out.

One more thing that catches LA freelancers off guard: California’s Franchise Tax Board cross-references federal 1099 data with state filings. If you receive 1099-NEC forms for freelance work and do not report that income on your California return, the FTB will send a notice with penalties and interest calculated from the original due date. The state is also known for auditing people who claim to have left California but continue earning from California-based clients. If your freelance clients are in LA and you claim to have moved to Nevada or Texas, be ready to prove the move was real — the FTB looks at driver’s license changes, voter registration, where your kids go to school, and where you actually spend most of your time. Getting this wrong can mean owing back taxes plus penalties for several years of improperly filed returns.