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Starting up questions  

post #1 of 26
Thread Starter 
Hey!! I was wondering if I could get some questions answered regarding starting up!! Do you need an inspection if you are home based and maybe doing four cakes a month? Really at a hobby state, but want to do it right. I am in NC. Second, going to my first business event at my husband's work. Should I offer samples or raffle off a cake? Thanks!
post #2 of 26

Yes, contact your local health inspector for your kitchen and then they will tell you what you need to be certified.

 

If you are just getting started and are still at the hobby level, I suggest making cakes for friends and putting them on a Facebook page.  I get many orders from Facebook .  I am a hobbyists who charges, I am not wanting to go big or own a bakery, I just love being creative and making cakes.

 

Give out free samples when you have leftover batter and buttercream, that way you aren't spending too much to promote.

 

Good luck and have fun!!

post #3 of 26
Thread Starter 
You sound like me. I just want some extra blow money. I don't plan on making a bakery in town or anything like that. I do have a facebook and have been posting some pictures! I haven't really started promoting myself. Want to dot my i's and cross my t's . I just wasn't sure if I even need inspection if I was at hobby level, but charged for my cakes. Thanks for the advice!
post #4 of 26
Quote:
Originally Posted by tiffany0727 View Post

I just want some extra blow money.

 I think that refers to extra money to buy a certain type of drug, no....

post #5 of 26

Goodness I hope not.  One cannot support a drug habit by just baking cakes.

 

I think what she meant was "pin" money…just extra money for herself to spend on life's little extras.

post #6 of 26
The Cottage Laws are different in each State, definitely start with your Health Department. Even if your just selling a few cakes each month you're still technically in business since your charging.

In my state, Illinois, for example you cannot make direct sales from home only at farmers markets and other designated areas unless you have a separate kitchen, food safety certification, and a bunch of other things including paying taxes (fun, fun).

I imagine at the very least you'll need a ServSafe or Food Safety Certification, tax id, and some sort of inspection. Some states have a limit on the income you bring in, certain labels you need to place on items, etc.

Just to be clear, I don't personally care if you do any of these things icon_smile.gif just trying to be helpful. I started with my local HD, they gave me a packet with checklists and other helpful tools. They had an inspector come over (free of charge) to explain what modifications I needed to make to my home, floor plan layout, things I didn't need to purchase, etc. they are very helpful!

Hopefully, you won't have to jump through as many hoops.
post #7 of 26
Thread Starter 
Haha totally NOT what I meant! Spending money for my kiddos and go out to eat money. Oh well! Thanks for your input ladies! I will check into it on Monday foe sure and be doing some research over the weekend.
post #8 of 26
A quick google search for "cottage food law nc" brought up several useful sites, including this one:

http://cottagefoods.org/laws/usa/north-carolina/

If you will be selling out of your home that usually comes under the cottage food umbrella. That is probably a good place to start your research.
elsewhere.
elsewhere.
post #9 of 26
Quote:
Originally Posted by Norasmom View Post
 

I am a hobbyists who charges

 
Very interesting. I didn't know that was legal. How does this work with the IRS - do you still fill out the Schedule C or are hobby sellers exempt? 

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post #10 of 26
mimi, i am not a tax expert by any means--but the language in schedule c instructions and elsewhere i think shows that the irs does recognize a distinction between hobbyists and businesses and they have distinctions for starting up and bladeeblabla--taxes make me very tired but here's the language--
 
Quote:
 
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Schedule C (Form 1040), Profit or Loss From Business

Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Form 1040, line 21, or Form 1040NR, line 21.

 

 

you still have to report it--there's instructions for that somewhere--

 

so to me, randomly doing a cake or two for someone for pay does not make it automatically a business to the irs--it's a judgement call  but they do recognize the hobbyist--not that the caker doesn't need to meet all the requirements of their locality as well--

 

but yeah sporadic activity does not qualify as a business although you still have to report it--

my cookies are prettier than your cookies because this is the second time i substituted my opalescent sanding sugar when i ran out of sugar to make the batch ha!

 

my cookies are prettier than your cookies because this is the second time i substituted my opalescent sanding sugar when i ran out of sugar to make the batch ha!

 

post #11 of 26

Oh, how very interesting. I appreciate all your help, Kate. So according to the IRS, income must be reported - whether it's on the Schedule C or another line on the 1040. I wonder if everyone here knows that. ;-)

 

My next question would be, how does the local health department differentiate between the "hobbyist" and the legal business. Just asking, cause I do like to understand everything. And I'm sure others want to know, too. 

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post #12 of 26
Not only must hobby income be reported, but the rules for deducting expenses against hobby income are much more restrictive, since hobby expenses are considered miscellaneous expenses on Schedule A and only expenses above 2% of your adjusted gross income can be applied to reduce hobby income. So a hobby could potentially owe tax even if they have a negative net income.

http://www.nolo.com/legal-encyclopedia/can-you-deduct-your-expenses-from-hobby.html

Generally health depts will consider someone a hobbyist if they only sell to friends and family, but as soon as you sell to the general public or advertise (via FB, a web site, or word of mouth) that's a business and licensing requirements kick in. YMMV so it's best to contact your local health dept if you have questions.
post #13 of 26

much more important to me is the distinction that hobbyists can receive money for their hobby and it remain a hobby according to the irs---a certain level of business activity has to be attained to be qualified as a business leaving tons of room for the average hobbyist to accept money for their products--depending on the local rules.

 

the qualification  would be different for me for example because i have been a professional cake decorator--the bar would be lower for me 'to be a business'  than for the average hobbyist--

my cookies are prettier than your cookies because this is the second time i substituted my opalescent sanding sugar when i ran out of sugar to make the batch ha!

 

my cookies are prettier than your cookies because this is the second time i substituted my opalescent sanding sugar when i ran out of sugar to make the batch ha!

 

post #14 of 26
Quote:
Originally Posted by -K8memphis View Post
 

much more important to me is the distinction that hobbyists can receive money for their hobby and it remain a hobby according to the irs---a certain level of business activity has to be attained to be qualified as a business leaving tons of room for the average hobbyist to accept money for their products--depending on the local rules.

 

the qualification  would be different for me for example because i have been a professional cake decorator--the bar would be lower for me 'to be a business'  than for the average hobbyist--

The IRS doesn't base the distinction of whether you are a business on the level of activity or a certain income threshold.  They look at your intent.  If you intend to make a profit, then it's a business; if you don't intend to make a profit, it's a hobby.  Regardless, you have to report all of your income.  It is actually in your best interest to file a Schedule C and claim your business income because you can write off your expenses.  A hobbyist typically cannot deduct expenses, unless they file Schedule A, and even then you lose the first 2%.

 

The presumption of a profit motive (i.e. your intent) comes into play if you file your taxes for several years and always claim losses and use these losses to offset your other taxable income.  For example, if you "lose" $10,000 a year for three years straight and use these losses to offset the wages you earn as an employee, thereby lowering your taxable income, the IRS can audit you and disallow these losses.  The theory is that a reasonable person would not continue to do something as a business that was losing money every year.  In this case, they would consider you a hobbyist and disallow ALL of your expenses or limit them to the amount you can claim on your Schedule A.  Since a majority of taxpayers don't itemize their deductions on Schedule A, the impact of being ruled a hobbyist means the IRS will tax you on 100% of your cake income--NOT your profit, your gross income.  Ouch!

post #15 of 26
+1 to PumpkinTart's post. This info is also available directly from the IRS:
http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions

It's ironic that some of the strategies that are employed to evade health dept requirements (such as only charging for ingredients) can cause serious financial issues on the IRS side.
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