smbegg Posted 28 Jun 2011 , 10:53pm
post #1 of

I have had a few ask me, so I am going to post what I have done and found out so far here!
You need to get a tax id to charge sales tax and you need one if you want to get any wholesale accounts (to be able to order from). Also, if you are going to call your business anything other than your name, you need to file a DBA-doing business as.

To get a Tax ID you go here: http://www.window.state.tx.us/taxpermit/
This is free, but you may want to set up your DBA before because it asks for the business name. The NAICS code that you need is 445291-which is baked goods store.

To get a DBA, you need to go to your county clerks. They will have an "assume name" either in office or online. Fill out the forms and they will do a record check to see if the name is available. There will be charges for this, but it should be under 20. Make sure to get yourself a copy. Your DBA will last for 10 years.

If you are doing a "sole Proprietorship" which is what most of you will be doing, you do not need a EIN number for your federal tax ID. That will be your SS# as you will just file on your regular taxes. If you set up a LLC or partnership, then you will need to file for a EIN.

When you file, you will need to pay small business tax (which are the taxes that you would normally have pulled from your check if working for a business.) And you will have to pay your state sales taxes quarterly.

Remember that you can claim some of your start-up costs and also your mileage, so make sure to keep track of those receipts and keep a mileage log. Also, if you qualify, you may be able to write off some of your household costs if your home is your sole place of business.

Hope that helps!
Stephanie

85 replies
cake_architect Posted 28 Jun 2011 , 11:18pm
post #2 of

thank you so much! this is very helpful icon_biggrin.gif i need to get started asap!

Texas_Rose Posted 28 Jun 2011 , 11:51pm
post #3 of

Thanks, especially for the NAICS code! KelleyM has set up a forum on her website for tx bakers business questions too http://www.texascottagefoodlaw.com/ You've got to register to be able to see it.

Oh, from what I understand, cakes aren't taxable in TX but you still need the sales tax ID, even if you never need to charge sales tax. If you sell a non-food item, like gumpaste flowers, or rent equipment out (I think) you have to charge sales tax on that.

DALIG Posted 29 Jun 2011 , 3:17am
post #4 of

ok i dont really get this if we dont pay taxes on cakes than what do how come we need the tax id. i mean i want to start my own business but see right now i dont make a lot of profit because since im not selling cakes legally i cant advertise much and my bottom sells are like 200 a month in a slow month but still if i sell like 500 is not a lot what do i do than. do i still do all this legal stuff for a few dlls. that i make a month, althogh i now ill get more people later i am really scared on starting all this, pls help me icon_cry.gif show me the light icon_cool.gif and encourage me to do this thumbs_up.gif

sacakesandbakes Posted 29 Jun 2011 , 3:28am
post #5 of

My husband got my DBA a year ago, he didnt want to lose the name he came up with. Maybe I should ask my CPA about the tax id #. He's told me before that milage is a write off and to save all the reciepts from buying ingredients and supplies. Those will be used to find out what the profit is and how much we would need to claim as income. So much to learn and so little time left.
9/1/11 Texas Home Bakers go LIVE! I'm excited.

Texas_Rose Posted 29 Jun 2011 , 1:10pm
post #6 of
Quote:
Originally Posted by DALIG

ok i dont really get this if we dont pay taxes on cakes than what do how come we need the tax id. i mean i want to start my own business but see right now i dont make a lot of profit because since im not selling cakes legally i cant advertise much and my bottom sells are like 200 a month in a slow month but still if i sell like 500 is not a lot what do i do than. do i still do all this legal stuff for a few dlls. that i make a month, althogh i now ill get more people later i am really scared on starting all this, pls help me icon_cry.gif show me the light icon_cool.gif and encourage me to do this thumbs_up.gif




You don't have to charge sales tax or pay it to the state for a cake you sell. You need the sales tax id to operate as a business in TX. It doesn't cost you anything to get it and I'm assuming all we have to do is send in a form each quarter showing we did not collect any sales tax (or pay any sales tax we did collect). You also need the tax id if you want to be able to buy supplies wholesale.

Federal income tax is a different issue altogether and you do need to pay federal income tax. We're lucky that TX doesn't have a state income tax...but you don't want to mess around with the IRS. If I remember right, any income you make over $500 in the year is taxable. You have to keep records of your expenses and then you pay tax on the profits you make, if you're self-employed.

The reason to do it all legally, even if it's more complicated, is because we finally have the opportunity to do it legally, and because paying taxes is the right thing to do, since the things taxes pay for, like highways and our military, make our country a better place for us to live in. Or because we don't want to get in trouble with the IRS...whichever is a better motivation icon_lol.gif

I know it sounds complicated as heck right now, but there are lots and lots of TX bakers who are in the process of figuring it all out right now, and everyone seems really helpful and willing to share what they've learned, so between all of us we should be able to get it all figured out.

smbegg Posted 30 Jun 2011 , 1:30am
post #7 of

Thanks for the facts on the sales tax. I didn't know that! That will make it easier!

You want to get the tax id and do it right! Plus you can get wholesale accounts that will be helpful to bring up your bottom line!

KalisCakes Posted 30 Jun 2011 , 2:51am
post #8 of

i just scrolled through this real quick.... did anyone mention you also have to charge sales tax on delivery fees, cake cutting services, etc?

RussellsCakes Posted 30 Jun 2011 , 1:54pm
post #9 of

I have had all of my stuff set up since April. I filed as a LLC and have an EIN. I purchase most of my equipment through Bakery Craft. I have been renting commercial kitchen space and will continue to do so until September 1 if I haven't gotten a shop set up by then. This is a huge win for Texas bakers.

yellobutterfly Posted 1 Jul 2011 , 4:53am

Ok I have a few dumb questions...what exactly is an LLC? What is EIN? And is the sales tax id also the same thing that we would use when purchasing supplies that would exempt us from paying sales tax on our purchase?

Cakepro Posted 1 Jul 2011 , 5:23am

LLC: http://tinyurl.com/33ebxd4

EIN: http://tinyurl.com/62z3ljs

Texas Sales Tax: http://tinyurl.com/63tvhlm

icon_biggrin.gif

estrada Posted 1 Jul 2011 , 6:06am

could someone tell me if this is the proper form for filing a dba?

http://www.sos.state.tx.us/corp/forms/502_boc.pdf

what_a_cake Posted 1 Jul 2011 , 11:51am

@ estrada... I have a different form for Brazoria County, so I think it's better for all of us to check with our COUNTY CLERCK to get the proper information

robinmarie Posted 1 Jul 2011 , 12:20pm

Thank you for starting this thread!!!!!!! Thank you, Thank you, Thank you!!!

RussellsCakes Posted 1 Jul 2011 , 12:33pm

For your DBA, You can file that with your County and the State. You must file with your County, I believe that the state is optional. I filed both. One thing to keep in mind if you plan to file for the formation of a Limited Liability Company, The filing fee is $300 with the state.

DALIG Posted 1 Jul 2011 , 8:49pm

OK I have another question, Do we need a seller's permit and a Bussiness license? or just the DBA and the tax id? im asking this because browsing online about the DBA I found a web page that offers all of this stuff for opening a bussiness and i am wondering if that applies to us home bakers.

smbegg Posted 2 Jul 2011 , 12:11am

no permits or licenses needed. It is different if you are opening up a sole proprietorship. With that you just file with regular taxes. When you get into LLC, that adds extra costs ect. There is no cost to get a Tax Id and in Collin County, it is only 9 bucks to get the DBA certificate. Pretty much zero start up!

Stephanie

DALIG Posted 2 Jul 2011 , 1:12am

thanks for that info than i guess i should start thinking on a name since i have no idea what to call my new icon_biggrin.gif BUSSINESS but i will think of something, oh yeah by the way can somebody tell me what is mileage since i remember reading in one of the first post.

Texas_Rose Posted 2 Jul 2011 , 3:38am
Quote:
Originally Posted by DALIG

thanks for that info than i guess i should start thinking on a name since i have no idea what to call my new icon_biggrin.gif BUSSINESS but i will think of something, oh yeah by the way can somebody tell me what is mileage since i remember reading in one of the first post.




Mileage is the miles you drive when you're using your vehicle for business, for example going to the store for supplies or delivering a cake.

smbegg Posted 4 Jul 2011 , 4:31am

Someone posted a question about start up. here is the info that I found on SOS I think

Business start-up costs are the expenses you incur before you actually begin business operations. Your business start-up costs will depend on the type of business you are starting. They may include costs for advertising, travel, surveys, and training. These costs are generally capital expenses.
You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining cost must be amortized.
For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535.
Depreciation
If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. You must spread the cost over more than one tax year and deduct part of it each year. This method of deducting the cost of business property is called depreciation.
Business property you must depreciate includes the following items.
  Office furniture.
  Buildings.
  Machinery and equipment.
You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. This deduction is known as the section 179 deduction. You can take a special depreciation allowance for certain property you acquire and place in service before January 1, 2005. For more information about depreciation, the section 179 deduction, and the special depreciation allowance, see Publication 946, How To Depreciate Property.
Business Use of Your Home
To deduct expenses related to the business use of part of your home, you must meet specific requirements. Even then, your deduction may be limited.
To qualify to claim expenses for business use of your home, you must meet both the following tests.
1.  Your use of the business part of your home must be:
a.  Exclusive (however, see Exceptions to exclusive use, later),
b.  Regular,
c.  For your trade or business, AND
2.  The business part of your home must be one of the following:
a.  Your principal place of business (defined later),
b.  A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or
c.  A separate structure (not attached to your home) you use in connection with your trade or business.
Exclusive use. To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.
You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes.
Exceptions to exclusive use. You do not have to meet the exclusive use test if either of the following applies.
1.  You use part of your home for the storage of inventory or product samples.
2.  You use part of your home as a daycare facility.
For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers).
Principal place of business. Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements.
  You use it exclusively and regularly for administrative or management activities of your trade or business.
  You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

bakerliz Posted 5 Jul 2011 , 7:10pm

I've been paying taxes on my cake business since I started a few years ago and I'm certainly no CPA, but there are a lot of things you can deduct. In additions to mileage, office supplies, etc., you may also be able to deduct a portion of your bills. I believe the stipulation is that you must have a closed off area completely devoted to your business, i.e. an office, a basement, a separate room (it must have 4 walls and a door) If the room takes up 3.65%of your home, then you can deduct 3.65% of your electric bill (or other utilities that function in that room)...Again, I'm no CPA, so you should check for yourself, but I think you will find a lot of deductions.

kjun27 Posted 7 Jul 2011 , 2:13pm

I just wanted to add the information I was given when I called to obtain my Sales Tax ID. Basically, I was told I did not need to get one and this is why:
1. Because I don't buy wholesale, I am paying taxes when I purchase my ingredients. Each cake is custom and I don't have the available storage area to house bulk items. This theory also applies to cake boards, boxes, and other supplies.
2. In Texas, taxes are not charged on the sale of a cake, cupcakes, cookies, etc. UNLESS you are selling an individual serving FOR IMMEDIATE consumption. Since I am neither providing a table for customers to sit at and eat nor am I providing an eating utensil, again no taxes.
3. There is no tax added to a delivery charge when the delivery is specifically for final set up of the cake. If I were to also stay and serve the cake, then taxes would be charged on any catering fees I would charge (not something I plan to do).
4. I asked about rental fees associated with cake stands and other supplies. Provided I only charge a fully-refundable amount (returned when supplies are returned) and do not call it a "rental fee", again taxes are not applicable.

In the event, my business plan changes it is entirely possible I will need a sales tax ID in the future. I asked if I should just go ahead and apply for the number and was told no. Each quarter, I would be required to file a return EVEN if no taxes are due. Basically I would have to file a return of "zeros". In the event I forgot and filed late two consecutive quarters, the third filing would result in a $50 fine even with a zero filing.

I went over all of this with the agent several times and was repeated told not to obtain a sales tax id.

I do have a FEIN as I will be operating under a DBA other than my own name. I will still be able to file federal taxes under my SSN because the business will be a sole proprietorship. I will need to attach the FEIN to my personal tax return.

I certainly don't profess to be an expert on any of this. I am simply relaying the information that I have been given.

smbegg Posted 7 Jul 2011 , 4:12pm

I got my tax id because I wanted to purchase wholesale. Just to add to the above poster's comment, you can easily file online with the 0 sales taxes collected. It isn't really complicated.

There are benefits to getting the ID. Just look into what you would like to do. CK products offers WHole sale pricing. Look into it and see if that is something you would be interested in. They also have country kitchen sweetart which are the same items, just not wholesale.

I prefer to get my supplies at bottom dollar to increase my profits. But if that is not your main concern, then do not do the tax id.

But if you are NOT going to be operating under your real name, as is, you do need to get a DBA or assumed name filed at your county clerks office. This will give you the rights to your name for 10 years. They will do a search and make sure that the name is not being used. Mine cost me $9.50.


Stephanie

DALIG Posted 8 Jul 2011 , 12:18am

well kjun27 thank you so much for the info. but i have a few questions what is a FEIN? i already got my DBA so now i just have to file my tax quaterly online but what is the form #? and than what do i do when i have to file my taxes with my husband next yr.? I still think its a little complicated. icon_cry.gif

smbegg Posted 8 Jul 2011 , 12:35am

An Fein is a federal tax id number. You do not need this is you are a sole proprietor. In that case you will just use your SS number as your federal tax id. You only need an EIN if you are a partnership, LLC, ect.


Stephanie

RussellsCakes Posted 9 Jul 2011 , 11:01pm

Your sales and use permit is quite valuable. Most of your local stores, wal mart, hobby lobby, micheals, etc, have arrangements to get set up with your sales tax number in their store and you will not have to pay sales tax on approved items for your business. Its quite simple, and if all you have to do is log in to the state's myCPA server once a quarter and file a "zero" return, that is a VERY small price to pay on the amount of money that you are saving by not paying sales tax. I've ran a few bars and filing our mixed beverage taxes through that system never took me more than 5 minutes. You must pay by the 20th of the month following the end of the reporting cycle. Simply put that on your calendar and you wont forget! Like someone mentioned, CK products allows you to buy wholesale with a tax ID. You can then purchase from Bakery Craft and Decopac with your tax ID. All of these things will save you money and increase your profitability. Also, in the event you decide to alter your business plan, you already have the breathing room to do so in the form of your Tax ID and don't have to worry about that potential fine for operating without one, which is up to $500 per day!

smbegg Posted 10 Jul 2011 , 1:18pm
Quote:
Originally Posted by RussellsCakes

Your sales and use permit is quite valuable. Most of your local stores, wal mart, hobby lobby, micheals, etc, have arrangements to get set up with your sales tax number in their store and you will not have to pay sales tax on approved items for your business.




How do you get these accounts set up? And I have some confusion as to why we don't have to pay taxes on those items if we are not charging taxes on the cakes. Just a newbie wondering!

Stephanie

RussellsCakes Posted 10 Jul 2011 , 2:49pm

It is standard procedure for retail outlets to charge tax on all taxable items. That way, if they ever get audited they are in the clear, when it comes to the government and taxes better safe than sorry. It is extremely easy to do. I had mine taken care of at hobby lobby in less than 5 minutes. You just tell them when you check out that you are a business and would like to set up for tax exempt, you will need your tax ID, I carried all of my business documents with me so I know for sure I had everything I needed. They fill out a form ,then a card and give to you and you are done. Then every time you check out, you hand them your card and they fill out a quick form and you are done. My local hobby lobby knows who I am and are ready with the form as I head through the line. I haven't gotten set up at Michaels yet, as I don't purchase there very often. At Wal Mart, you need to go to the service desk and tell them you would like to fill out the appropriate information as well

RussellsCakes Posted 10 Jul 2011 , 2:50pm

I misunderstood your question about the tax it looks like. It has to do with re-selling. Hopefully someone else can give a good explanation of how it all works.

twobitedelights Posted 10 Jul 2011 , 4:05pm

Items that would be taxable on their own -- such as cake boards and boxes and candy -- are non-taxable when sold incorporated as a material, ingredient or component of a new product produced for sale that is non-taxable.

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