Selling A Cake

Business By kristanashley Updated 1 Aug 2010 , 4:58pm by kristanashley

kristanashley Posted 28 Jul 2010 , 7:37pm
post #1 of 31

So, I'm a newbie. I haven't made very many cakes and I'm still learning a lot. Anywho, I've made quite a few cakes recently for my extended family and I'm making a cake for a kinda-friend's son this weekend, and I've agreed to do a couple of more over the next couple of weeks. I love it, and I would continue to do it just because I love it, but my husband doesn't get that. He has put his foot down and said that it's too expensive and time consuming for me to just make cakes for everybody without payment, and that he doesn't want me to do it anymore unless it's for an immediate family member's birthday or something. So my question, is it illegal to ask for payment, even if it just covers the cost of the cake, without being licensed and stuff? I just want to be able to make cakes. icon_sad.gif

30 replies
catlharper Posted 28 Jul 2010 , 7:41pm
post #2 of 31

Anytime you ask for money it's considered a sale. Without a license it's considered an illegal sale. Better to look into what it takes to get licensed and go from there.

TexasSugar Posted 28 Jul 2010 , 8:20pm
post #3 of 31

It depends on where you live. Have you seen this thread?

http://cakecentral.com/cake-decorating-ftopict-586218.html

kristanashley Posted 28 Jul 2010 , 9:30pm
post #4 of 31

Well I don't think I'm good enough, much less ready to have a licensed business, so I guess I'll just have to try to convince my hubby to let me bake... Any good manipulators out there? icon_wink.gif

cakeprof Posted 28 Jul 2010 , 9:43pm
post #5 of 31
Quote:
Originally Posted by kristanashley

So, I'm a newbie. I haven't made very many cakes and I'm still learning a lot. Anywho, I've made quite a few cakes recently for my extended family and I'm making a cake for a kinda-friend's son this weekend, and I've agreed to do a couple of more over the next couple of weeks. I love it, and I would continue to do it just because I love it, but my husband doesn't get that. He has put his foot down and said that it's too expensive and time consuming for me to just make cakes for everybody without payment, and that he doesn't want me to do it anymore unless it's for an immediate family member's birthday or something. So my question, is it illegal to ask for payment, even if it just covers the cost of the cake, without being licensed and stuff? I just want to be able to make cakes. icon_sad.gif




Would help to know what state your in. Folks could give you a more definitive answer. For instance if you live in California, the answer is no home baking is allowed. However if you live in Michigan a new law just made you life much easier. So where you at?

kristanashley Posted 28 Jul 2010 , 10:18pm
post #6 of 31

I'm in NC. From what I understand, you can have a licensed kitchen in NC, but I was wondering if you absolutely have to have a license to sell a cake. I'm not trying to run a business - I'm really not good enough or ready for that step. I would still be doing it for friends and family and stuff, just asking them to cover the cost of the cake. If I'm not really making a profit, and I'm not doing many cakes, does it still matter? Could I conceivably get into trouble?

indydebi Posted 28 Jul 2010 , 10:27pm
post #7 of 31

The logic of "i'm not really making a profit" is said all the time, and every time I remind folks that the IRS could care less if you are a lousy business person who can't figure out how to price their product to make a profit. Money exchanged hands which makes it a business transaction.

General Motors didn't make a profit but they were still considered a business.

Most people show a loss the first 3-5 years of opening their doors, but they are still considered a business.

Making a profit is not what defines "being a business".

kristanashley Posted 29 Jul 2010 , 3:51pm
post #8 of 31

Thanks for the insight I guess. I don't plan on going the business route, so I guess you guys won't be seeing much of me. Count yourselves blessed to be able to work at what you love. icon_smile.gif

ddaigle Posted 29 Jul 2010 , 4:07pm
post #9 of 31

I know this has been discussed to death and I totally understand the law, but I'm sorry, if my aunt wants to slip me a 20 for ingredients....I'm gonna take it, say thanks, and keep my mouth shut. My opinion.

jewels710 Posted 29 Jul 2010 , 4:39pm
post #10 of 31

kristanashley said: "I don't plan on going the business route, so I guess you guys won't be seeing much of me"

Just because you may not go the "business route" does not mean you don't belong here. This site has AMAZING information and members who can and will teach, inspire, just lend a listening ear or even chew you out if needed (lol).
Don't be a stranger!

mamakasst Posted 30 Jul 2010 , 1:38am
post #11 of 31

Hey! I am new to the cake decorating world as well. My husband, like yours, thinks that I should be making money for my cakes. I, like you, just want to make cakes because it is what I love and I want the practice. I don't want to get into trouble for taking money so I did a little investigating into what is needed in North Carolina to become a homebaker. If you go to the NC Department of Agriculture it can provide some more information (I'm sorry I don't have the website right off hand). I did find out that you can not open a home bakery if you have a pet inside the house at anytime. You would also need them to come do an inspection of sorts before they will license you. You can private message me if you want to talk/share experiences since we are in the same situation!

I am not sure if I am quite ready to go the "business" route either. At this point I, like you, would just want to the the money for the materials but it is better safe than sorry. You don't want to get penalized for your passion! I plan on calling the Department of Agriculture tomorrow and find out what really goes into getting licensed and if you can "rent" a licensed kitchen (I have a dog so I am trying to find alternative means!) I will let you know what they say and what all the license entails!


Good Luck! Oh, and what part of NC are you from!?

kristanashley Posted 30 Jul 2010 , 11:53am
post #12 of 31

hey mamakasst! Thanks for your reply - it's good knowing there is someone else in my boat. Strength in numbers icon_smile.gif Thanks for the information. I looked at the website, and it doesn't seem too unreasonable, but I have a dog, so it would never happen.... unless I threw him outside and lied and said he never comes in the house... but then the inspector would see the table leg that my dog chewed on as a puppy, or the scratch marks on my door, or a random rawhide laying on the floor... icon_smile.gif So yeah, it's definitely not going to happen for me. But let me know what you find out - I hope you can make it work for you. As far as renting a kitchen, I know a lot of people use church kitchens, but I don't really know what goes into that process. I'm in between Sanford and Ft. Bragg, btw - kinda out in the sticks. icon_smile.gif Good luck!

cakesdivine Posted 30 Jul 2010 , 7:45pm
post #13 of 31

North Carolina is one of the lucky states! You can easily become licensed in your home kitchen in NC! Contact your local Ag Dept. for information on how to obtain your license. And good luck!

MessMaker Posted 31 Jul 2010 , 4:21am
post #14 of 31
Quote:
Originally Posted by ddaigle

I know this has been discussed to death and I totally understand the law, but I'm sorry, if my aunt wants to slip me a 20 for ingredients....I'm gonna take it, say thanks, and keep my mouth shut. My opinion.




I totally agree. I just think of anything over the cost of ingredients a tip, and I take my tip and buy more tools to learn new things.

cupcakeqt72 Posted 31 Jul 2010 , 4:41am
post #15 of 31

What if they buy your ingredients? just a thought??

kristanashley Posted 31 Jul 2010 , 11:33am
post #16 of 31
Quote:
Originally Posted by MessMaker

Quote:
Originally Posted by ddaigle

I know this has been discussed to death and I totally understand the law, but I'm sorry, if my aunt wants to slip me a 20 for ingredients....I'm gonna take it, say thanks, and keep my mouth shut. My opinion.



I totally agree. I just think of anything over the cost of ingredients a tip, and I take my tip and buy more tools to learn new things.




I'm generally of the same mindset, but my aunt, or neighbor, or friend, or whoever most likely won't keep their mouth shut, and that makes me nervous. You never know who is going to care about something like this, which seems inconsequential to me, but could conceivably have an impact on other businesses. If it's illegal to take money from people, even if it just covers the cost of the cake, I would rather not do it and not have to worry about it.

kristanashley Posted 31 Jul 2010 , 11:38am
post #17 of 31
Quote:
Originally Posted by susanemt

What if they buy your ingredients? just a thought??




Thank you for the amazing common sense solution! I don't see how it could be illegal for someone to buy the actual ingredients or supplies that I need... That's like bartering... and it saves me the time of going to the store myself... I like it!

leah_s Posted 31 Jul 2010 , 11:51am
post #18 of 31

That" solution" is brought up all the time around here.

It's not a solution.

If anything of value is exchanged it's business. The IRS requires you to pay taxes on the value of bartered items.

kristanashley Posted 31 Jul 2010 , 12:25pm
post #19 of 31
Quote:
Originally Posted by leah_s

That" solution" is brought up all the time around here.

It's not a solution.

If anything of value is exchanged it's business. The IRS requires you to pay taxes on the value of bartered items.




Well, after reading this, I actually went to the IRS website and this is what I found:

Bartering is the trading of one product or service for another. Usually there is no exchange of cash. Barter may take place on an informal one-on-one basis between individuals and businesses, or it can take place on a third party basis through a barter exchange company. A barter exchange is any person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.Barter exchanges, whether Internet based or with a physical location, are required to file Form 1099-B for all transactions unless certain exceptions are met. Barter exchanges are not required to file Form 1099-B for:
Exchanges through a barter exchange having fewer than 100 transactions during the year
Exempt foreign persons as defined in Regulations section 1.6045-1(g)(1)
Exchanges involving property or services with a fair market value of less than $1.00

What I took from this:
The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.
Barter exchanges are not required to file Form 1099-B for:
Exchanges through a barter exchange having fewer than 100 transactions during the year

Yay! It's okay for me!

all4cake Posted 31 Jul 2010 , 12:31pm
post #20 of 31
Quote:
Originally Posted by cakesdivine

North Carolina is one of the lucky states! You can easily become licensed in your home kitchen in NC! Contact your local Ag Dept. for information on how to obtain your license. And good luck!




thumbs_up.gifthumbs_up.gif Incredibly easy! Approximately 63 (check with your county, city, and HOA to make sure you ain't breakin' their rules)bucks and 1 week later, you're completely licensed to sell. 50, business license (acquired through city hall), 11 bucks to register your business name (register of deeds) 2 bucks to have dba form notarized.

you don't have to wait until you're "that good" (whatever one thinks that is) to become licensed. do it now, satisfy your dh and charge away.

inspection-dept. of ag

business permit-city hall

notarized copy of application for business name-any public notary-form available as a pdf here-http://www.nccommerce.com/en/BusinessServices/StartYourBusiness/Forms/

register business name-registar of deeds-courthouse(?)

check with county tax assessor to see if you must file a Business Personal Property Tax form that lists items used to produce your product(this one truly pisses me off...but that is soooooooo another vent)...pans, spatulas, bowls, mixers, oven, refrigerator, freezer......not all counties assess this tax. I just happen to be in one that does.

Register with ncdor-http://www.dornc.com/taxes/sales/who.html


The point at which you decide to go from giving them away to selling them, is the point you should become legal, regardless of the income. At some point...like 3 years, if your earnings are less than a certain amount you are considered a hobbyist. I don't recall who determines this or what the amount is.

all4cake Posted 31 Jul 2010 , 12:41pm
post #21 of 31

I don't see that whole them buying the ingredients as a barter or exchange 'cause the baker/decorator has nothing to keep as value for the services provided. Them buying the ingredients and someone else accepting those ingredients, baking, decorating with those ingredients and handing them a cake-to me- is the same as someone handing you a bag of groceries, you setting it on your table, pulling everything out then putting it all back in but neatly arranged in a different order and handing the bag of groceries back to them...you don't benefit from the exchange. I think it's BS! I do believe some clarifications to that arrangement should be made. Seriously, what if you went to their house and baked the cake and decorated it? would it still be bartering? they bought the ingredients for you to create the cake. I just don't get that one.

a barter is when two parties benefit from the exchange, isn't it? or is it?

PiccoloChellie Posted 31 Jul 2010 , 1:29pm
post #22 of 31
Quote:
Originally Posted by kristanashley


What I took from this:
The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.
Barter exchanges are not required to file Form 1099-B for:
Exchanges through a barter exchange having fewer than 100 transactions during the year

Yay! It's okay for me!




You need to determine what the IRS definition of a barter exchange is before you get excited.
http://www.irs.gov/businesses/small/article/0,,id=113437,00.html


People, be smart about it. If you're in the United States, you're talking about the IRS here and that's one dog you do NOT want latched on to your butt. They want a chunk of your income, and that includes fair market value of non-monetary items exchanged in barter.

If your aunt buys you a bag of flour and a carton of eggs and you make her a cake for her dinner party, that's not a big deal.
If you provide a shopping list of supplies and ingredients to your aunt's friend's hairdresser in exchange for her son's wedding cake, you're risking some problems.
If you exchange cakes for ingredients & supplies on even a semi-regular basis for folks outside your immediate family, not only are you at a MUCH greater risk of getting caught by the IRS and the health department, but you're also giving away your labor for free and that's a really dumb thing to do (along with the whole tax evasion thing).

leah_s Posted 31 Jul 2010 , 1:29pm
post #23 of 31

If you went to their house and baked/cooked, you'd be a personal chef and around here at least, I'm pretty sure you need to be licensed for that as well. The licensing is not just something the Health Department/Department of Ag thought up to make your life more difficult. it's so that people who handle food that is to be consumed by other have training in sanitation and proper food handling. Licensing is a good thing. Otherwise there's be rampant cases of food borne illnesses.

all4cake Posted 31 Jul 2010 , 1:49pm
post #24 of 31

I understand the going to their house thing, probably the wrong scenario to use as an example. I was referring to the purchase of items and getting them back...the decorator wouldn't have anything to show for their effort. I just don't think that that should be considered bartering or a transaction of any kind. If the decorator were getting double the amount of ingredients for making the cake, then the excess would be considered the bartering portion...JMMHO

costumeczar Posted 31 Jul 2010 , 1:55pm
post #25 of 31
Quote:
Originally Posted by all4cake

I understand the going to their house thing, probably the wrong scenario to use as an example. I was referring to the purchase of items and getting them back...the decorator wouldn't have anything to show for their effort. I just don't think that that should be considered bartering or a transaction of any kind. If the decorator were getting double the amount of ingredients for making the cake, then the excess would be considered the bartering portion...JMMHO




You're probably right, but this looks like another thread where people just want us to tell them that it's okay to do what they want to do whether it's okay or not. I'm going to go bang my head against the wall now.

PiccoloChellie Posted 31 Jul 2010 , 2:02pm
post #26 of 31
Quote:
Originally Posted by all4cake

I was referring to the purchase of items and getting them back...the decorator wouldn't have anything to show for their effort. I just don't think that that should be considered bartering or a transaction of any kind. If the decorator were getting double the amount of ingredients for making the cake, then the excess would be considered the bartering portion...JMMHO




For the IRS that *may* not be an issue, BUT

1. It's a big issue for the Health Dept/Dept of Agriculture
2. The decorator is giving away their labor for free in this case. Who the h*#& would do that for a stranger/acquaintance (outside of a charitable situation)? I guess if someone wants to take only the *exact* amount of ingredients/supplies that they'll use and donate 5, 10, 20 hours of skilled labor per cake to a stranger without ever taking a single tip or gift on top of the exact ingredients/supplies used, well, the IRS may not care (hopefully).

But there's still those food handling laws....


Quote:
Originally Posted by costumeczar

You're probably right, but this looks like another thread where people just want us to tell them that it's okay to do what they want to do whether it's okay or not. I'm going to go bang my head against the wall now.




Much like the copyright thread.

I'll be over on the other side of the room doing a little cranial collision myself.

all4cake Posted 31 Jul 2010 , 2:04pm
post #27 of 31

If you bang my head against the wall, I'll do the same for you! How would we report that to the IRS...the exchange of services...oh, but wait....it's a non-commercial situation of like kind or something like that...LOL.

The information on the IRS website is worded in a way that it could easily be taken out of context (whatever that may be) to the benefit of the author or the reader. I say, it would be nice if IRS would clarify that point of bartering to include a scenario similar to the one previously mentioned in this thread.

I think I will attempt to make contact with the IRS on the matter. I didn't see an email contact link (could be that they don't want their responses in writing???...or I'm just blind...hey, tax credit there!) only phone numbers.

ETA: I must've misunderstood the OP. I thought she was asking about the legalities of payment without a license to sell.

costumeczar Posted 31 Jul 2010 , 3:21pm
post #28 of 31
Quote:
Originally Posted by all4cake

If you bang my head against the wall, I'll do the same for you! How would we report that to the IRS...the exchange of services...oh, but wait....it's a non-commercial situation of like kind or something like that...LOL.

.




Here you go http://www.irs.gov/businesses/small/article/0,,id=187920,00.html

http://www.irs.gov/businesses/small/article/0,,id=215975,00.html

Using the 2009 1040 as a reference, I assume it would be listed on the "other income" line 21. But you should probably ask an accountant, not random people on the internet.

itsacake Posted 31 Jul 2010 , 7:34pm
post #29 of 31

As I understand it, at least in California, it is illegal to SELL cake from your home kitchen. That is why I gave away cake for four years and now (finally!!!!) have a commercial kitchen from which to sell.

The operative word is sell. If someone brings me ingredients and I bake a cake and give them the cake, how is that selling? Where is the business in that transaction? The person getting the cake clearly benefits, but where is the benefit to me? This is so not a business. It seems the opposite. The recipient of the cake could be said to be profiting from my hobby, but I'm clearly putting in hours and getting nothing but satisfaction. This is a hard case for the IRS to pursue. A similar scenario would be that I'm having a dinner party and am pushed for time. I give a friend tomatoes, lettuce and cucumbers and she brings me back a salad. This is not a business transaction and the IRS is not coming to get either of us.

I've been dealing with the health department for quite a while now, and if you are a hobbyist, that also seems a non issue. They are interested in people selling food. Someone mentioned a personal chef. At least in California, I can hire anyone to come to my house and cook. They don't need to be licensed as they are not selling food, they are selling their service of cooking food in my own kitchen. They can give me a list of what to buy, or I can buy and tell them what to cook, but the health department does not get involved. Think of housekeepers and nannies and even elder care workers who come and cook and clean in people's homes. They are not licensed by the health department. If you are making cakes for free for your friends and relatives, the health department does not care.

This topic always get out of hand on here. The only way to know for sure what you can or can't do is to talk to the people in the jurisdiction in which you are. Talk to the Health Department or equivalent (Here it is the Department of Environmental Health) and to the city about business licensing, etc. That way you can decide what you want to do with the proper knowledge of what the risks might be or if there even are any. By the way, I wouldn't take business advice from the health department or food advice from the business people, they often are confused about the rules for department other than their own.

As always, just my $0.02 and possibly not worth even that....

costumeczar Posted 31 Jul 2010 , 10:06pm
post #30 of 31
Quote:
Originally Posted by itsacake



This topic always get out of hand on here. The only way to know for sure what you can or can't do is to talk to the people in the jurisdiction in which you are. Talk to the Health Department or equivalent (Here it is the Department of Environmental Health) and to the city about business licensing, etc. That way you can decide what you want to do with the proper knowledge of what the risks might be or if there even are any. By the way, I wouldn't take business advice from the health department or food advice from the business people, they often are confused about the rules for department other than their own.

As always, just my $0.02 and possibly not worth even that....




But going to the health dept would make sense, and it's much easier to try to get some random person online to agree with what you want to do, then decide to take that advice to the exclusion of all the advice you get going the other way! (sarcasm here, people)

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