Cottage food rules
Cottage Food Business Tax Deductions (2026): What to Claim
What a home baker can actually deduct, and the records that keep it simple.
On this page
- Do you have to report income under the cottage food limit?
- Is there a minimum income before you file?
- Do you need an LLC to deduct expenses?
- What records should you keep?
- What counts as an ordinary business cost?
- How do you split a mixed grocery receipt?
- How do you record labor and overhead?
- How to work out your profit for one order
- Mistakes that cost you money
- What to check before you file
Cottage food business tax deductions are not about finding loopholes. They are about tracking the money you already spent. The work is in the records, not the forms.
What to remember
- Being under your state’s cottage food revenue limit does not exempt you from reporting income.
- There is no minimum income floor for Schedule C.
- You can deduct business expenses and file Schedule C without forming an LLC.
- Most cottage food sellers are sole proprietors.
Do you have to report income under the cottage food limit?
Yes. The same guide says being under a state’s cottage food revenue limit does not exempt a seller from reporting income. The limit is about what you may sell, not about what you may earn tax free. You report your income on Schedule C.
Is there a minimum income before you file?
No. The same guide says there is no minimum income floor for Schedule C. If you made any profit, you report it. If you made a loss, you may be able to deduct it. The form is the same either way.
Do you need an LLC to deduct expenses?
No. The same guide says a cottage food seller can deduct business expenses and file Schedule C without forming an LLC. Most cottage food sellers are sole proprietors. That means your business income and expenses go on your personal tax return.
What records should you keep?
Keep every receipt for anything you buy for the business. That includes ingredients, packaging, labels, and market fees. Write the date and what it was for on the receipt. A folder or a photo on your phone works.
Save every receipt
Keep a photo or a paper copy of every business purchase.
Mark it as business
Write what it was for and the date on the receipt.
Add it up monthly
Total your expenses at the end of each month.
File Schedule C
Report your income and expenses on Schedule C with your tax return.
A monthly total helps you see your profit before tax time. It also shows you if a cost is growing. You can use a notebook or a simple spreadsheet.
What counts as an ordinary business cost?
An ordinary business cost is something you buy only to make and sell your baked goods. The answer above lists ingredients, packaging, labels, and fees. Software you use only for the business is also a business cost. The page lists Brevl at $20 a month.
If you use an item for both personal and business use, only the business part counts. A mixed grocery receipt needs a clear mark for the business items. That mark helps you prove the deduction later.
How do you split a mixed grocery receipt?
You can buy personal groceries and business ingredients on the same trip. The problem is proving which items were for the business. Write the business items on the receipt and circle them.
A separate card for business purchases makes this easier. If you cannot separate them, ask a tax professional before you claim the deduction.
How do you record labor and overhead?
Labor is the time you spend baking, packaging, and selling. Overhead is the ongoing cost of running the business. The page lists shop software as an example of overhead. Record both so your profit picture is complete.
How to work out your profit for one order
For example, say you charge $60 for one order, and your ingredients cost $15 for that order. Your labor is $20, and your overhead is $5 for the same order. Subtract all three costs from $60, and your margin is $20 after ingredients, labor, and overhead.
Mistakes that cost you money
What to check before you file
Check your state’s cottage food rules first. Some states have their own sales tax rules for home bakers. See our guide to cottage food laws and sales tax for the general picture.
If you are in Maryland, read Maryland cottage food law and sales tax. For Texas, see cottage food law Texas taxes. For the full set of rules, start with our cottage food rules hub.
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- Cottage Food Law for Your Home Baking Business
- Cottage Food License in Georgia: What Home Bakers Need
Common questions
Do I have to report income if I made under $600?
Yes. The same guide says there is no minimum income floor for Schedule C. Even small amounts must be reported. The cottage food revenue limit in your state is about what you may sell, not about what you may earn tax free.
Can I deduct my kitchen utilities?
The rules do not list specific deductions in the material we have. A safe approach is to deduct only the extra costs you pay because of the business. Keep receipts and ask a tax professional about your home office or utilities.
Do I need an LLC to deduct expenses?
No. The same guide says a cottage food seller can deduct business expenses and file Schedule C without forming an LLC. Most cottage food sellers are sole proprietors. That means your business income and expenses go on your personal tax return.
What if I made a loss?
You still file Schedule C. The form reports both income and expenses. If your expenses are more than your income, you show a loss. Keep your receipts so you can prove the loss, and ask a tax professional how that loss affects your personal return.
Can I deduct my Brevl subscription?
If you pay for Brevl to run your shop, that is a business expense. Brevl is $20 a month. The same rule applies to any software or tool you use only for the business. Keep the receipt and mark it as a business cost.
Sources
This is general information, not legal or tax advice. Talk to a tax professional about your situation.