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Is this still considered business when...

post #1 of 14
Thread Starter 

Atter several weeks of pondering, praying over and over if the decision not to continue caking for profit was the right thing to do after i found out NJ has no cottage law, i finally announced it to my friends and family that. After all, i owe them that since they were my biggest fan when I doubted my skills. 

 

They all were shocked (even thought it was april fools)  they thought i was making it big already with the many cakes i was posting on my personal wall (what they didn't know most of them were free or just projects for blogging purposes) 

 

anyways, one of my co-workers wasnt ready to give up on my talents yet (haha- for the lack of a better term) she suggested this (she said since im pretty much giving my cakes and cupcakes for free any way- people come out of wood works when i bring cupcakes for free, though they dont talk to you on a regular basis haha) 

 

Heres the solution she presented: tell them how much ingredients would cost you and ask for that alone (Ii use high end ingrdients, im not bragging, thats just how i learned to bake and thats how i chose to bake  for my son) i dont use hersey, i use lindt or foreign chocolates...get the picture? 

 

She said, if you dont feel comfortable charging them for labor, ask them donate labor cost to your church or charity of your choice (autism speaks)

 

Is this feasible? Is she making sense? Like i said, i dont mind caking for free. Ive done it for years. Out of the many cakes i made, 80% of them were free. 

 

 

Thoughts? 

post #2 of 14

if you intend to be a business you're over the line with what you are proposing--it is just a way to circumvent doing it the right way--unless you seriously want to be a 501c3--which being a full blown bakery is probably easier

 

i am not of the ilk that thinks that if you sell your couch you're a furniture business or if you sell your car you're a car dealership

 

if you can't jump through the hoops and be legal and that's a deal breaker for you--where you don't want to get commercial property and employees and do it up big then you are right to call it quits 

 

suck it up, get out and stay out of the business

 

in my opinion and that of the federal government as i understand it you can be a hobbyist you can accept money for an occassional cake as in two or three a year or whatever--no matter what the popular opinion is on this website

 

but if you intend to be a business then you're illegal doing it  

 

the beauty of this is that you can always still do cakes --bigger and badder than the last--you just need to not succumb to peer pressure--like your 'friend' no offense but she needs to mind her own business----i don't know why peeps press and press and press and press and press and press anyone who can operate an oven to open a bakery business--a small part of it is a complement and the rest of it is most annoying

 

i am rock rib deeply passionate about this subject

 

if it's not allowed legally in your community the way you want to do it then don't do it ;)

 

i think a better question is how do you get peeps off your back

the only way to see the rainbow is to look through the rain

 

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the only way to see the rainbow is to look through the rain

 

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post #3 of 14

There is someone on the forum that does a similar thing.  She determines a price, makes a cake to order, and then the person makes out a check to the bakers charity of choice.  The baker receives nothing for supplies, labor, nothing.  Basically she is fronting all of the costs and the charity receives a nice big check for the retail price of the cake. 

post #4 of 14
Quote:
Originally Posted by denetteb View Post

There is someone on the forum that does a similar thing.  She determines a price, makes a cake to order, and then the person makes out a check to the bakers charity of choice.  The baker receives nothing for supplies, labor, nothing.  Basically she is fronting all of the costs and the charity receives a nice big check for the retail price of the cake. 
This would be the way to do it. From the perspective of anyone not involved, the baker is giving someone a cake for free, and the recipient of the cake is donating directly to a charity in a separate, unrelated transaction.
post #5 of 14
Thread Starter 
Quote:
Originally Posted by denetteb View Post

There is someone on the forum that does a similar thing.  She determines a price, makes a cake to order, and then the person makes out a check to the bakers charity of choice.  The baker receives nothing for supplies, labor, nothing.  Basically she is fronting all of the costs and the charity receives a nice big check for the retail price of the cake. 

Ohhhhh myyyy i love this idea! This is one on my bucket list. Thanks!

post #6 of 14

so are you a hobby baker, a charity or a business?

 

if you did a lot of cakes or if you did noteworthy cakes you would eventually come under scrutiny of the health department or the tax boys or both

 

viable businesses and (unfortunately almost unfathomably) it's often relatives who pull the plug--make one phone call

 

so whichever way you go be sure to have all the little quacking unruly ducks in a nice straight quiet quackless row

 

that's also part of the problem everytime you do a bang up cake enquiring minds want to know...

 

... and encourage you to start a business ;)

 

it's a cycle that i dread

the only way to see the rainbow is to look through the rain

 

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the only way to see the rainbow is to look through the rain

 

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post #7 of 14
If I'm understanding your post correctly, the suggestion is to pay for your ingredients and donate the cost of labor. As far as I know, if you accept money for the cake, even if it's less money than it cost you to make it, it's still a business transaction.

It's more of a "how much can I get away with" question. The health department probably won't be knocking on your door if you do this for a friend or two, but that doesn't mean it's legal.

Also, there are rules and regulations around fundraising for charities too, so even if people were donating 100% of the money to your favorite charity, make sure you check the rules first.
post #8 of 14

I called my local county's public health dept and they said I can make cakes for friends and charge whatever I want without violating any of their rules. It's when I try to advertise or sell to the general public that they are going to expect me to follow code. 

 

My best advice is to check with your local regulatory agencies and see where you stand. 

elsewhere.
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elsewhere.
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post #9 of 14

Another option is an organization, I think it is called icing smiles or something like that.  It is a nationwide non profit that provides birthday cake for kids in hospitals or with health issues.  They link up people who like to make cakes with kids that could use a cake.  I am just recalling this information from previous posts so may not have it exact. 

post #10 of 14
Quote:
Originally Posted by jason_kraft View Post

This would be the way to do it. From the perspective of anyone not involved, the baker is giving someone a cake for free, and the recipient of the cake is donating directly to a charity in a separate, unrelated transaction.

To be clear I have been one to argue that baking for family and friends is not a business transaction and I have spoken against those that are concerned with policing legality. My issue is with those that will argue that any attempt to circumvent legal requirements through the act of donating between baker and "customer" is somehow distinct when the money goes to a third party justifying it as unrelated transactions. This is clearly a self-serving rationalization that masks the real nature of the relationship.

In fact, the perspective of anyone not involved is irrelevant (the whole point is to keep the outsider unaware of the exact relationship). This is nothing more than a bartering based exchange. Here is why.

The IRS characterizes charitable donations as a gift or donation that is "voluntary and is made without getting, or ex­pecting to get, anything of equal value " (link). The IRS does not stipulate that the charitable organization has to be the one who provides anything in return. Indeed multi-party bartering is a common practice. In this case there is no doubt that the "donation" made by the customer is not voluntary as there is most certainly an expectation of getting something in return. This is clearly an exchange based relationship wherein the customer provides a service to the baker in exchange for a cake.

Now the objection will be nothing is being bartered because a monetary donation is not a service. In this situation this is most certainly not the case. Although the definition of service is contested it is common to describe it as a task performed by individuals. While certainly in most cases few would consider a donation a service, this is due to the fact the money is donated freely to a charity. That changes when it is required by a third party in exchange for something of equal value.

In this situation the individual is tasked by the baker with giving money to an organization. The donating agent therefore provides a service to the baker, even if the donation goes to a charity. That service is that the baker does not have to donate this/her money to the charity. The customer enables the baker to not have to donate the money they would have given if they did not have to make the cake.

If the baker would not have donated, the exchange based relationship is even more transparent. The baker can work on improving skills, doing what they want to do, making cakes. They do not have to sacrifice their own funds to the charity which would prevent him/her from continuing to bake and decorate. In either case the service is the enabling the baker to not have to donate thereby enabling them to do something else. The baker is clearly bartering his/her goods (a cake) for a distinct service (not having to donate to his/her favorite charity).

Claiming that the acts are unrelated is simply false and an outright misrepresentation of facts. Anyone could engage in the same characterization without including a charity. Here is how. I give monetary gifts to my friends, family, and strangers (panhandlers for example) fairly regularly. I can easily come up with a celebratory reason to give people money. So X person gives me a $100 gift on Monday, who knows why, maybe they just like giving me gifts on Monday (but we all really know why). On Friday I "give" them a cake well because I know they like my cakes and I like them to tell me how good they (but we all really know why). How is any outside person going to know it was "paid" for? They are totally unrelated right? But we know they are not, just as they are not in this case.

Frankly I don't care if a person wants to engage in this relationship (no more than I care if someone wants to "donate" cash). Put another way, I am not here to police your legality or illegality. Just be honest about the nature of the transactions instead of acting as if it is somehow not a relation of exchange.
post #11 of 14
Quote:
Originally Posted by gatorcake View Post

The IRS characterizes charitable donations as a gift or donation that is "voluntary and is made without getting, or ex­pecting to get, anything of equal value " (link).
I agree that if OP was advertising that they were giving away cakes in exchange for a mandatory donation that would be an issue. If this happens within the OP's circle of friends and colleagues, there is no advertising to the general public, and the donation was voluntary (with a suggested amount based on whatever), I don't see a problem.

Expectation of getting something in return for the donation is something of a gray area pragmatically, especially if the donation is voluntary and not advertised. But making sure the donation is not required is definitely a good point.
Quote:
So X person gives me a $100 gift on Monday, who knows why, maybe they just like giving me gifts on Monday (but we all really know why). On Friday I "give" them a cake well because I know they like my cakes and I like them to tell me how good they (but we all really know why).
The difference there (again looking at things practically as opposed to ethically) is that the financials are directly traceable to you, and if you get enough mysterious "gifts" the IRS will notice in an audit. The bigger issue is liability though, since if there is a problem the recipient can claim that the "gift" was actually a payment and you have yourself a commercial transaction.
Quote:
a distinct service (not having to donate to his/her favorite charity).
Equating someone's charitable donation to a third party's cost avoidance is stretching it. There is no way to show that the third party would have donated in the first place, and as you mentioned a donation is voluntary with no expectation of compensation, therefore even if a donation was considered a service it would have no value as a barter.
Edited by jason_kraft - 4/3/13 at 8:14pm
post #12 of 14
IIRC the caker who makes the cakes in exchange for a donation 1) doesn't advertise, and 2) the donation goes to a volunteer arm of her church like a food pantry or something similar. Most of her customers, I believe, are from the congregation. I could be wrong, but that's how I remember it.
post #13 of 14
Quote:
Originally Posted by keepcalmandbake View Post

Ohhhhh myyyy i love this idea! This is one on my bucket list. Thanks!

I don't remember the caker's username, but wasn't terribly long ago when she posted about it. The thread has to be around here somewhere.
post #14 of 14
As someone else mentioned, if someone is interested in outright donating cakes, Icing Smiles is a great way to do it. They connect you with a family with a medically complicated child. I believe you do not have to be a licensed baker to do it. It's a really easy process to sign up and can make a big difference for these families. Their website is www.icingsmiles.org.
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