forheavenscake Posted 16 Sep 2009 , 4:11pm
post #1 of

Hi all! Well I am very very new to this whole cake stuff but am looking at just making cakes for friends and others as they ask etc. Nothing 'official' yet. So for the money collected for those few cakes how do taxes work? Or is it a don't ask dont' tell kinda thing. . haha since they would be so few cake made.

Also, if I wanted to actually get licensed and make it legal what would I have to do. . not necessarily for starting a 'business' ya know, just enough to be able to make them in my kitchen for people when needed.

sorry if this sounds silly, just have no idea where to start or what's needed. In the beginning stages of brainstorming I suppose.

Thanks!

16 replies
tiggy2 Posted 16 Sep 2009 , 7:47pm
post #2 of

It depends on where you live. Some states do not allow home based kitchens. What state are you in? You need to start with the health department and they can guide you in the right direction.

PumpkinTart Posted 16 Sep 2009 , 9:53pm
post #3 of

Accounting for your income for a side business is fairly straight forward. Until/unless you decide to establish a corporation for your cake business, you would just add a Schedule C or Schedule C-EZ to your personal tax return. It's pretty straightforward and asks for your income and expenses and then calculates your taxable income from there. If you use Turbotax or other similar software, it walks you through entering everything you need to input. You do not need to have a Tax ID# for your business in order to add the Schedule C and claim your income/expenses. I do one every year because I am an independent contractor in another industry. And, if your expenses for purchasing equipment and supplies are more than your income, doing the Schedule C on your tax return will show a "loss" for your business and it will reduce the regular income from any other jobs you have that is taxable.

The IRS expects people to claim ALL of their income, regardless of whether it was legally obtained or not. Mobsters rarely go to jail for their violent crimes--the IRS gets them for tax evasion. Haha!

leah_s Posted 17 Sep 2009 , 2:02am
post #4 of

The first time you accept money for a cake you're running a business. And accounting and paying taxes is a part of that business.

chelleb1974 Posted 19 Sep 2009 , 3:34pm
post #5 of

My only input, as an accountant and tax preparer, is to echo what mseif and leah_s have said - couldn't have said it better myself!

And yes, it's the IRS that puts the mobsters in jail - not the police!


If anyone ever has any tax or accounting questions, please feel free to PM me and I'd be happy to help out with advice!

~Chelle

annisa523 Posted 22 Sep 2009 , 7:02am
post #6 of

This was my question earlier in a different forum, when do you go legit? because you start giving cakes and you can't do it forever and for everybody but you have one here and there that you sell at least to cover the ingredients. Doing taxes will defenitely put me at a loss because of the area where I live, when it comes to pricing people always want cheap, and like someone commented in another forum -'some people don't realize how much goes into just one cake'.
I would like to start advertising and that would mean that I'm defitenely running a business, getting in trouble it's not a good way to start.

cakemaker30 Posted 22 Sep 2009 , 11:16am
post #7 of
Quote:
Originally Posted by annisa523

This was my question earlier in a different forum, when do you go legit? because you start giving cakes and you can't do it forever and for everybody but you have one here and there that you sell at least to cover the ingredients. Doing taxes will defenitely put me at a loss because of the area where I live, when it comes to pricing people always want cheap, and like someone commented in another forum -'some people don't realize how much goes into just one cake'.
I would like to start advertising and that would mean that I'm defitenely running a business, getting in trouble it's not a good way to start.




Are you in a state that licenses home kitchens? I got lucky that I am so I was able to be legitimate with the very first cake that I sold. Where it gets tricky is when you can't have a home kitchen and you need the practice, but you don't want to give all of your cakes away for free. So I guess the place to start would be to find out what it takes to have a business license for a bakery in your state. If you're willing to post where you are I'm sure there are people from your state that could help you.

annisa523 Posted 23 Sep 2009 , 5:59am
post #8 of

Thank you cakemaker30 for the reply. Yes I live in Oregon and they do allow home kitchens to be licensed. from what I gathered from the city website it does sound simple, you register your business name, pay your license fee, take care of insurance. I 'm going to have to research my particular neighborhood, because there's certain guidelines that vary depending on what subdivision you live in. You know some neighbors/neighborhoods don't want a lot of traffic, people in and out of next door, etc.
The scariest thing is how high insurance would get, I read a post by Indy on another forum talking about profit, that her insurance is about $500. If I'm not bringing in a profit because I'm not constantly selling, how can I afford to fork out that king of money!? The other thing is commercial license for my car for deliveries- doesn't that devalue your vehicle?
Well, I'm on a quest and I'm learning.

madgeowens Posted 23 Sep 2009 , 6:12am
post #9 of

icon_eek.gif

cakemaker30 Posted 23 Sep 2009 , 10:41am

I run my cake shop out of my home and I was able to get a business liability policy through my car/home insurance agent. It's $225 a year and they split it up into monthly payments and add it to my auto insurance bill. It ends up being $18.75 a month and I have 2 million in liability coverage so it's not bad at all. I read the post you are talking about from Indydebi and she's right it can be a ton of money, but she also has a shop that she is running her business out of and she has a catering business in addition to cakes. I think she was just trying to give everyone an idea of how much it really costs to open a business. It can be a lot simpler than that if you are doing it from home. icon_biggrin.gif

Deb_ Posted 23 Sep 2009 , 7:02pm
Quote:
Originally Posted by leah_s

The first time you accept money for a cake you're running a business. And accounting and paying taxes is a part of that business.




This is what I believe to be true, however there's a member on here who says it's not so.......I guess she has her own definition of what a "business" is.

annisa523......
I'm also a legal home baker and my insurance is just under $200 a year, it's not too bad.
With any new business venture you have to be willing to put money out when you get started......I didn't show a profit on my taxes for the first 3 years.

As the saying goes...."it takes money to make money".

annisa523 Posted 4 Oct 2009 , 5:56am

Thank you ladies,
I'm asking questions to all of you, who have been there, I'm not making my own definition of what a "business" is.
I made my nieces 15th b-day cake(free). A friend who's a single parent really wanted to have a party for his daughter's 15th too. I offered to make the cake -for free. He said it was going to be something small. I figured 3 tiers or so.

Later the girls mom came into the preparations, the cake she asked for 450-500 people! The girl wanted a specific cake stand, I found it on the web for $1500+. I told my friend I couldn't buy that, they couldn't either. So I told him I 'd buy somehting similar(I invested $300+), but since it wasn't in my plan when I offered to give them the cake I asked if he could help me with $100. I gave him a receipt and I kept every receipt of what I spent even $1 or $2 at the $ store for my records and, if i get licensed for tax purposes(this was in Aug.) My out of pocket total $450+.
The cake was 11 tiers! did I sell this cake? You can say yes for $100. And like you say dkelly about not making profit for your first 3 years. When I show all my receipts for what I spent, obviously no profit.
I didn't plan for this situation when I offered to help. No! (my offer was more than a year ago, I needed to keep my word) from reading some of the other forum topics, other bakers licensed or not run into something unexpected.
Every baker I'm sure thinks, considers, even dreams of their own business on top of a cloud, does it mean we're ready?
Here's where these questions come in, and reality, that there's much more than just baking and decorating.
Thanks for your replies.

LaBellaFlor Posted 4 Oct 2009 , 7:06pm

If they tell me small, I'm thinking 50 people & thats what they'll get. I'll be damned if I front something for 500 people. And NOBODY can convince me they weren't taking advantage of the situation. Unbelievable!

And yes, don't we just hate that it takes money to make money. I know I do. icon_wink.gif

annisa523 Posted 17 Oct 2009 , 5:26am

Yes I did or still do feel a bit taken advantage of.
But it's hard, I known this person for about 17 yrs. A few months before the event he had knee surgery and wasn't able to work, but was very determined to celebrate his daughter's b-day . . . then again, if it's too much why not keep it small huh? -I don't know.
It's done and over with. I did get a lot of compliments from a lot of people and some asked if I had a card, that got me feeling like 'hey I could do more of this' but that's why I figured I'd learn more before jumping in- there's taxes, insurance, license, logo design, figuring pricing etc. etc. there's much more than baking and decorating a cake!
But money and time wise I know it's easier to give a small birthday cake than an 11 tier one. And I should watch my mouth when feeling generous.

sweettales Posted 29 Jul 2013 , 1:10pm

Hi, I have some questions and I am hoping someone can help me out. I am just starting out my cake business and taxes get me a little confused. Lets say that because I bought a new mixer, new oven and I basically built a studio from the ground up I will be able to show a loss for a while and that is because I had to bring water, gas, electricity, pour a new floor among a number of things, the thing is that my operating expenses and fix and direct cost for the month of July were only $345,   however, my sales for the month of July were $2500. Even though on paper I can show that the $2500 still is a loss, how do we go about paying for social security? and sales taxes? Do I have to pay sales tax although I am still at a loss? what about social security?

 

 

Thanks so much

Elizabeth Houde

jason_kraft Posted 29 Jul 2013 , 4:40pm

A

Original message sent by sweettales

Hi, I have some questions and I am hoping someone can help me out. I am just starting out my cake business and taxes get me a little confused. Lets say that because I bought a new mixer, new oven and I basically built a studio from the ground up I will be able to show a loss for a while and that is because I had to bring water, gas, electricity, pour a new floor among a number of things, the thing is that my operating expenses and fix and direct cost for the month of July were only $345,   however, my sales for the month of July were $2500. Even though on paper I can show that the $2500 still is a loss, how do we go about paying for social security? and sales taxes? Do I have to pay sales tax although I am still at a loss? what about social security?

Social security and income tax are based on your business's net income, if you have no net income you do not owe tax, and if you have a loss you may be able to apply that loss against other income. Note that net income for the whole year is considered, so if you erase your loss and turn a profit by the end of the year you will owe social security and income tax. Talk to your accountant for more details.

Sales tax is a different story since it is calculated based on gross revenue, but if your products are taxable you would simply collect the necessary sales tax from your customers and pass it on to the state.

sweettales Posted 5 Feb 2014 , 10:20pm

Jason, I am sorry it took me so long to get back to you, 2013 was a crazy year, so much took place in my little business venture and I can not believe I made it.  I wanted to take a minute to thank you so much for your input and information. I just did my taxes and though of you :)  I been following your comments her on CC and I believe I have reviewed some of the articles your wrote in your blog. Good staff! 

 

 

Best Regards

Elizabeth Houde 

 

https://www.facebook.com/SweetTalesCake

http://www.sweettalescakeboutique.com

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