Krista512 Posted 13 Feb 2012 , 6:14am
post #1 of

I make a few cakes here and there. mostly just on my own to practice and i go give them away. every so often i will make a cake for a friend that asks for their kids birthday party and cupcakes for the teachers that ask at my kids school. the only cash i would bring in is money that friends shove in my pocket that i try to refuse when i make a cake as my birthday present to their kid.

i had some people say they were going to report me for making a cake a month for friends kids.

i know there has been some sort of cottage food law passed that lets people bake at home now in texas but i have tried reading about it and all the legal stuff is so confusing to me.

what are the basic details of this law.

im also confused as to when i decide to try to start doing cakes professionally on a regular basis and keep cash books and such stuff for taxes. so from what i understand now i should report the $20 that people slip me for a cake I do. but if i do that to keep people on here from reporting me then i have to lable my self as a home business, i will have to pay a self employeed fee to the government and all that and pay taxes out but i dont understand why since i buy more stuff for cake making than what i would bring in even if i was to charge for cakes right now. so to me that seams pointless to even try cause i will end up defeiting the purpose of making cakes for extra cash when the money i make is less than what i put out. and i would loose my WIC for being self employeed i get for my son too but i dont have income.

i want to do cakes when my son gets old enough to put in day care and i can afford it but i dont see how the money is there to make. the city i live in people dont want to pay out unless you go to the very rich areas and thats huge weddings cakes that i wouldnt dare jump into. how do you make money off of cakes when you have to rent commercial kitchens to make large enough cakes or mass quantities for a whole weekend. then you have to calculate in product cost, then pay your taxes, and pay for some sort of insurance incase you do something wrong. i just dont see how there is a penny left for you. especially if you have to make a practice cake for a new style and have to make tasting cakes for the people that want tastings of every flavor .

im so cunfused. any help is appreciated.

17 replies
jason_kraft Posted 13 Feb 2012 , 7:11am
post #2 of

First off, the people who said they were going to report you were probably talking about the health department (food safety enforcement), not the IRS or dept of revenue (tax enforcement). Now that TX has a cottage food law you do not need to be licensed or inspected by the health dept as long as you follow the cottage food law rules, here is a FAQ page that should help:
http://www.dshs.state.tx.us/foodestablishments/cottagefood/

Re reporting your income -- it's really not too difficult to track your expenses and income, and if you operate your home business at a loss (which it sounds like you're doing) you may actually be able to use that loss to offset other income. Talk to your accountant for more details. A program called cake boss should be able to help you as well.

Krista512 Posted 13 Feb 2012 , 8:45am
post #3 of

Thank you that link helped a lot!!!

Now when it says no internet sales, that means I can't have a website? & can't post ads on local for sale sites like our newspaper online?

kelleym Posted 13 Feb 2012 , 1:28pm
post #4 of
Quote:
Originally Posted by Krista512

Thank you that link helped a lot!!!

Now when it says no internet sales, that means I can't have a website? & can't post ads on local for sale sites like our newspaper online?



http://texascottagefoodlaw.com/TheLaw/LawSummary.aspx

sillywabbitz Posted 13 Feb 2012 , 2:52pm
post #5 of

Also you should join the "Texas Baker's Bill" facebook page. This is where a lot of the updates and questions are answered. The Texas Cottage Food Law is in place (which means a commercial kitchen is not required) but there are very specific guidelines on what you can produce and you need to be come familiar with those. Both links provided above will give you guidances. At the moment they're trying to propose some pretty complex labeling guidelines so there is a lot of activity on the facebook page right now. I think many of your answers will be available on Kelley's link and/or the facebook page.

Krista512 Posted 13 Feb 2012 , 2:59pm
post #6 of

thank yall so much!!!!!!

jgifford Posted 13 Feb 2012 , 3:21pm
post #7 of

I'm operating under the Texas Cottage Food Law and it's wonderful!

You don't have to have a business license.

You have to have a label on all products that they are prepared in a kitchen that is not inspected by the HD. You CAN"T be inspected by the HD. If they show up on your property, they'd better have a court order. All they can do is log any complaints against you - - if your cakes made anyone sick, etc.

You can have a website to advertise, but any financial transactions must take place fact-to-face. This is to keep you from selling to Joe Blow in Timbucktoo.

According to the Texas State Comptroller's office, you're tax exempt for cakes, cupcakes, cookies, pies, jams, jellies, spice mixes, croissants, tortillas . . . .I don't have the list with me, but that's the majority. As long as you don't provide eating utensils or a place for your customers to eat the products, you're good.

As far as taxes, I will check with the IRS. We can't make over $50,000 per year, and I think they probably expect most home bakers to operate at a loss.

It's pretty much a win-win.

flourjuice Posted 22 Mar 2012 , 8:43pm
post #8 of

jgifford, do you have a tax id number? I just don't know where to begin on the tax end of this.

jason_kraft Posted 22 Mar 2012 , 8:48pm
post #9 of

If you are a sole proprietorship (all businesses owned by a single person are sole props by default) then you can use your social security number as your business's tax ID number, or you can request an employer ID number (EIN) here:
http://www.irs.gov/businesses/small/article/0,,id=102767,00.html

I recommend getting an EIN, it's free and helps protect your SSN.

jgifford Posted 22 Mar 2012 , 9:09pm
Quote:
Originally Posted by flourjuice

jgifford, do you have a tax id number? I just don't know where to begin on the tax end of this.




I do have an EIN number, and a license, but it's strictly my choice since neither are required. I got the EIN on the irs web site because some suppliers won't sell to you if you don't have one, and I can supply that number instead of my social when I need to.

As far as taxes go, I don't sell anything taxable so there's no sales tax issues. At tax time, I may need to file a separate business return but I've been told I can simply add any income to my personal return. I think I prefer to keep everything separate - - just too much of the accountant in me I guess.

johnson6ofus Posted 25 Mar 2012 , 2:51am

The IRS stuff CAN be easy. Look at a Schedule C form, and the instructions. The money you get paid for your cakes, minus- ingredients, gas for the car, a portion of the utilities, the supplies, etc- equals your profit.

You pay taxes on that PROFIT only, which includes the self employment tax (social security-15%) and then income tax.

And yes, that "profit" can be a negative number- so you owe nothing. So if you are making "practice" cakes, and someone gives you $20, you probably have ZERO profit.

Records, receipts, and bookkeeping are all very important. A community college introduction course in accounting could really help.

funtodecorate2 Posted 25 Mar 2012 , 4:03am

So can someone please tell me about Oregon. I've posted but no one is responding. Maybe not too many of you out there fall under it.

johnson6ofus Posted 25 Mar 2012 , 5:21am

funtodecorate- start at the sticky about which states license home kitchens. Then understand you must comply with laws on health/ agriculture (based on state), maybe some county regulation, maybe some city regulation, and then the IRS. Like some city have business permit requirements, others do not. So...

1. How do you bake it? Kitchen/ health / inspection requirements.
2. How you sell it- Local licenses, permits, sales tax permits, DBA filing
3. IRS and paying on your profits.

So unless someone is from your city, even state information may not be enough to help you. Be prepared to make LOTS of calls....

jason_kraft Posted 25 Mar 2012 , 5:33am
Quote:
Originally Posted by funtodecorate2

So can someone please tell me about Oregon. I've posted but no one is responding. Maybe not too many of you out there fall under it.



Oregon does have a Cottage Food Law (they call it a domestic kitchen license), here is the relevant info:
http://www.oregon.gov/ODA/FSD/program_food.shtml#Domestic_kitchens

funtodecorate2 Posted 25 Mar 2012 , 8:44am

Thanks for the info. This is the same thing I had read.But... I was expecting something to read Cottage food law instead of domestic kitchen. It appears that Oregon has more hoops to jump through then other states. They have it that they need to come and inspect and everything pretty much has to be separate from your house . I don't have doors into my kitchen. And it can be accessed from 2 areas. So that means now one can walk through to get a drink or pass through to go outside.. I didn't think they could come and inspect. It states the hrs on the web which they can come by . They require a license too. Not that I oppose that but after reading all their requirements I left wondering what is the difference between this and going into business ? Not exactly what I'm wanting to do. They also want labels and suggest they look at them first. So you make a wedding cake and label everything in it? A birthday cake which is totally different flavor and then take that label in for them to inspect?? sounds a bit crazy to me. But there again as far as I see Oregon has great rules on everything NOT!! icon_mad.gif I'm talking about having licenses for other things not related to this that I go through. Unless I am not reading things right it isn't too appealing.
I live in a rural area. I haven't seen or heard of anyone producing any cakes in quality like I see on this site. Our bakeries are mainly walmart,safeway,fred meyers.So I don't think I'm would take any business from anyone what very little I want to do. Guess I have to stick with all freebies icon_sad.gif

funtodecorate2 Posted 25 Mar 2012 , 9:19am

Oh I forgot to add that we have many farmers markets and garage sales around that sell baked items. We are limited to baked goods that need no refrigeration. As long as we have a sign that reads .. not prepared in a licensed kitchen we can sell it. So I don't understand what the difference is ? Thanks for any insight on what you think.

jason_kraft Posted 25 Mar 2012 , 2:26pm
Quote:
Originally Posted by funtodecorate2

Thanks for the info. This is the same thing I had read.But... I was expecting something to read Cottage food law instead of domestic kitchen. It appears that Oregon has more hoops to jump through then other states. They have it that they need to come and inspect and everything pretty much has to be separate from your house . I don't have doors into my kitchen. And it can be accessed from 2 areas. So that means now one can walk through to get a drink or pass through to go outside.. I didn't think they could come and inspect. It states the hrs on the web which they can come by . They require a license too. Not that I oppose that but after reading all their requirements I left wondering what is the difference between this and going into business ? Not exactly what I'm wanting to do. They also want labels and suggest they look at them first. So you make a wedding cake and label everything in it? A birthday cake which is totally different flavor and then take that label in for them to inspect?? sounds a bit crazy to me.



The type 11 domestic bakery license in OR doesn't sound very onerous to me. If you really want to have a home bakery, the cost of installing doors in the kitchen pales in comparison with what people have to do in non-CFL states. Inspections should not be a big deal as long as you follow the rules (which fit on one page). For labels, you can work out the ingredients of all your cake flavors, frosting flavors, fillings, etc. separately and attach those labels to the cake box or invoice as needed. Creating the labels shouldn't take you more than a few days.

http://www.oregon.gov/ODA/FSD/docs/pdf/pub_domkit.pdf

funtodecorate2 Posted 25 Mar 2012 , 3:19pm

Thanks Jason,
Things seem bigger at 2 in the morning. icon_eek.gif

Do you know what the difference is between labeling baked goods as( Not made in a licensed Kitchen) as in bake sales and farmers markets. Verus having a domestic kitchen which produces like 1 cake a month.
sorry for all questions but I do appreciate your responding to them. icon_smile.gif

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