Hi all,
I should have a firm answer in reference to the interpretation of the cottage law in my county tomorrow. It's pretty promising, so I'm taking the next few steps to make sure this is still a possibility.
I'm not speaking in reference to income taxes, but rather sales tax, unemployment tax, etc. Do these all apply to a home based bakery business? Products would include cake, cupcakes, mints.
My *thought* is that these are sort of "bid jobs" in where each cake is "bidded" therefore not necessarily taxable since it's part-labor too. I come from a service industry so that's why I'm semi-interpretating it that way. Does not mean that's the right way, which is why I'm asking how your accountant/state tells you to do this.
I'd appreciate any information/links/etc to point me in the direction of some answers. I fully intend on contacting my accountant, but I want to be sure to have some knowledge behind it all first!
TY!
I second IndyDebi... you need to check the tax laws in your state. In Ohio, where I am, food is not taxable. And I've already paid the tax on the packaging, so that's taken care of.
Income tax, however, is a whole other issue.
I suggest you call your state's department of taxation.
Good luck! Maria
In my nonfood business in IL, if I take an item that I purchase, and add to it in any way, it should ALL then be taxed as "finished goods" since you have increased the value of the original item, even if it is all labor to embellish it. I would think cakes might fall under this type of thinking, if food is taxable. You are selling them an item (cake), not just a service.
Only a tax pro in your state/county, or the IRS of your state, can tell you for sure.
it definitely depends on your state/county/city tax laws. Where i am currently at most of what i offer is not taxed, however chocolate and a few other items are. It's all food, but they fall under different categories.
The accountant you use for your business should be able to answer these questions for you.
you need to talk to a CPA who knows the tax laws of your state.
As I stated, that is certainly my intentions, but I was just wondering some preliminary information to start with. I have a CPA handle my taxes each year and I work for my parents who own a large service company in our state. I understand a lot of the ins and outs of taxation and was just wondering how it applied to a home based bakery in Indiana. I just thought maybe I could pick up some links/info/etc from here.
My concerns would be things outside of income taxes that are filed at the end of each other...I'm more interested in things such as sales tax, unemployment tax, etc.
Just trying to get my ducks in a row to do this legitimately.
You didnt' indicate what state you were in.
unless you are selling exclusively at a flea market, you can't have a "home based bakery" in Indiana.
If you have employees, you must file Unemployment Tax and withholding tax. Self-employment taxes are due quarterly. Sales tax due monthly on taxable items. Note: If you sell a cake that they carry out of your store, it's not taxable. If you sell a slice of cake on a plate with a fork, it's taxable.
Unless you have an accounting background, or have someone in the family who does, I strongly recommend getting an accountant.
Thank you Debi, that's what I was after.
Also, according to my local health department, yes you can. I suppose they are interpreting the cottage law a bit differently than some. I will be requesting a letter stating their interpretation. I was informed so long as I didn't set it up in a "store-type" fashion, that this would be acceptable. In other words, my driveway is my "roadside stand" and I cannot try to have a storefront of any sorts. Funds must be exchanged outside my home and no delivery would be allowed (I'm not wanting to do weddings..I want to do cakes/cupcakes/cookies for pickup).
I currently have a very thorough, highly recognized accountant. I was just looking for some basic information to start with so I didn't enter into a conversation blindly.
In other words, my driveway is my "roadside stand" and I cannot try to have a storefront of any sorts. Funds must be exchanged outside my home and no delivery would be allowed .
Hey, I just caught the confusion in this.
You can't deliver but you can't accept payment at your home. 
So you have to drive to Starbucks to collect the money and then they follow you back home to pick up the cupcakes?? That sounds very conflicting and confusing.
In other words, my driveway is my "roadside stand" and I cannot try to have a storefront of any sorts. Funds must be exchanged outside my home and no delivery would be allowed .
Hey, I just caught the confusion in this.
You can't deliver but you can't accept payment at your home.
So you have to drive to Starbucks to collect the money and then they follow you back home to pick up the cupcakes?? That sounds very conflicting and confusing.
No, blame that on my lack-o-sleep! (Daughter's 1st dance recital today!)
Anyhow, now, you can accept money outside the home, just not past your doorway because then you are treating your HOME as the store. Instead, you exchange goods AND money outside your door on say your driveway and that is your "roadside stand" and therefore is within the legal limits.
As for how they are getting to this? Well, let's just say I'm the first to actually call and discuss the law at length and he admitted that the cottage law is to help better able people to operate small business FROM their home but stay within the legal limits to exchange money and goods. SO, I'm sure there are several baker sin the area, but because this law is still less than a year old, and because I've researched the law quite a bit...when I called he was new to the information and we've both talked and discussed it. So, it seems this will go over. Now, the county next to me? No such luck.
I'll let you know once I get the letter...but in both our extensive conversations this isn't an issue. I just want the letter for security purposes so nothing can be said. Since it'll be low key for th emost part.. I'm not too worried, but I just know the second I'm not looking, I'll get turned over and since I live SO close to the other county...I want the documentation of our discussion to please our case. I think I may write up my own letter and have them sign off on it.
not sure what state you're in, but in Ohio with the cottage food laws....you do not have to charge tax on the cakes (since it's food, and any part that is non-food has already had the tax paid on it by me when I purchased it).
I'm allowed to deliver and accept payment at my home, however I'm unable to allow anyone to EAT any of the cake in my home (even for a tasting) if I'm charging money for it. I used to make the tasting free and in my home but everyone in the city wanted to "try my cake" and were posing as brides (cheapos) so I started charging, so now I have to come to them or meet them somewhere else (I use my mom's house sometimes lol) otherwise I would be considered a "cafe" or "restaurant" if I was serving food IN my house.
As for income taxes, I just provide my cpa w/ a print out of all my orders, categorized by customer (i make a print out on Cake boss once a month) and a print out of my expenses for the month (also printed from Cake Boss) then I give him the figures of "total profit for year" and it's entered as "extra income" on my taxes! Easy peasy! I don't have to pay quarterly taxes or anything for a cottage food business (only if I was a home-based bakery)
not sure what state you're in, but in Ohio with the cottage food laws....you do not have to charge tax on the cakes (since it's food, and any part that is non-food has already had the tax paid on it by me when I purchased it).
I'm allowed to deliver and accept payment at my home, however I'm unable to allow anyone to EAT any of the cake in my home (even for a tasting) if I'm charging money for it. I used to make the tasting free and in my home but everyone in the city wanted to "try my cake" and were posing as brides (cheapos) so I started charging, so now I have to come to them or meet them somewhere else (I use my mom's house sometimes lol) otherwise I would be considered a "cafe" or "restaurant" if I was serving food IN my house.
As for income taxes, I just provide my cpa w/ a print out of all my orders, categorized by customer (i make a print out on once a month) and a print out of my expenses for the month (also printed from ) then I give him the figures of "total profit for year" and it's entered as "extra income" on my taxes! Easy peasy! I don't have to pay quarterly taxes or anything for a cottage food business (only if I was a home-based bakery)
PERFECT!!! And, TY!!! I was hoping this was the way to go! 
Now this makes me even MORE excited!
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