those of you that do the "cottage industry" thing..... do you bother paying income tax on what you make? a tax person here in canton told me that you don't have to pay anything if you make under $600 per year.... just wondering how you all handle the issue. thanks!

~erica

Hi, yes they are correct. No matter what job you have, if you don't make over $600.00 a year no tax.. Well I guess you have to figure that out on how you personally want to handle it. If there is no paper trail, or recorded anywhere, who knows what you have made. I know some young ladies that babysit, that make more than that but its all cash, they are only 12 and 14 and i'm sure they are not paying taxes. Legally you are required to pay taxes, even the babysitters! I don't have that problem yet, cause i haven't sold more than about 3 cakes so far (made a lot for free) so I haven't even thought about this as a income yet. Maybe someone else can tell you the way they are handling it. Good luck.
Jeanne

Once you earn $500, you are required to pay self-employment taxes, Social security and medicare (roughly 15%). That would be $500 after expenses for supplies. If you have a legal business, there are other deductions you can take on your annual income.

Many people choose to hide the income, you just have to weigh the risks for yourself.

As for state taxes, they vary a lot.

OH is a great state to bake cakes in because of the cottage industry status. However, it is still considered a legal business, tax wise. It is not that difficult to deal with taxes because there are no sales tax on food! You only have to pay income taxes and self employment taxes. It has always been my opinion that it is not worth getting caught by the IRS (unless you enjoy migraines) and that the write offs are more than worth it. Talk to a professional about the pros and cons of using a tax id vs. a social security number for your business and which would benefit you the most.

Because it is easy for us here, it makes the most sense to be above board as to avoid any potential drama down the road. I believe it is also a state of mind. If you treat your business as a business- it will be much more successful. Just my philosophy and humble opinion.