When is a Business a Business?

[disney junky]

A former student of mine does some baking at home for people. She doesn't advertise. She's not incorporated, she just bakes cakes and cookies for people privately. Today she was served with papers from the dept of health because someone reported her. She must cease and desist (I don't know if that's the official legal term). To get licensed, she would have to get rid of any pets she has, and she does have a pet.

This happened to a coworker a few years ago. His wife would make candy to order. He put a sign up sheet in the school cafeteria (in the prep area) for people who wanted to order candy for Christmas, Easter, or Valentines Day. Not a full time gig by any means. Health Dept inspectors during a regular visit saw the sign up sheet and told him he couldn't continue.

At what point does a friendly transaction become a business?

 

[low-key]

At what point does a friendly transaction become a business?

when you have an ******* who has nothing to do in there miserable life but to tell on people

 

[BriarfoxinWA]

If she is selling her baked goods - it's a business and she should be having her kitchen inspected by the heath department.

 

[disny_luvr]

A former student of mine does some baking at home for people. She doesn't advertise. She's not incorporated, she just bakes cakes and cookies for people privately. Today she was served with papers from the dept of health because someone reported her. She must cease and desist (I don't know if that's the official legal term). To get licensed, she would have to get rid of any pets she has, and she does have a pet.

This happened to a coworker a few years ago. His wife would make candy to order. He put a sign up sheet in the school cafeteria (in the prep area) for people who wanted to order candy for Christmas, Easter, or Valentines Day. Not a full time gig by any means. Health Dept inspectors during a regular visit saw the sign up sheet and told him he couldn't continue.

At what point does a friendly transaction become a business?

OMG! What a small world! I know who you’re talking about. I saw this of FB today. I am sad and angry. She baked cupcakes for my parent’s 50th wedding anniversary and we got so many compliments on them; I recommended her to many people. Can I order cakes or cupcakes from her as a “friend” in the future? I feel so bad and just can’t believe she was reported.

 

[Mackenzie Click-Mickelson]

If she is selling her baked goods - it's a business and she should be having her kitchen inspected by the heath department.

Nah. You'd have to count people selling their baked goods for all sorts of events like PTA meetings, fundraisers, etc. Even someone who only sells their baked goods at those times would be considered a business under your comment.

 

[Mackenzie Click-Mickelson]

A former student of mine does some baking at home for people. She doesn't advertise. She's not incorporated, she just bakes cakes and cookies for people privately. Today she was served with papers from the dept of health because someone reported her. She must cease and desist (I don't know if that's the official legal term). To get licensed, she would have to get rid of any pets she has, and she does have a pet.

This happened to a coworker a few years ago. His wife would make candy to order. He put a sign up sheet in the school cafeteria (in the prep area) for people who wanted to order candy for Christmas, Easter, or Valentines Day. Not a full time gig by any means. Health Dept inspectors during a regular visit saw the sign up sheet and told him he couldn't continue.

At what point does a friendly transaction become a business?

Do you know what the report was for? Like what cause?

 

[3 MEN AND A BOAT]

This reminds me of a guy that sits out at a busy intersection in the county. He sets up a table, a shade canopy tent, and proceeds to sell doughnuts. He’s been doing it for close to a year now. I keep thinking I didn’t know I could set up shop in the median but he sure has.

 

[Skellingtonj]

when you have an ******* who has nothing to do in there miserable life but to tell on people

Agreed some people have too much time on their hands.

 

[chicagodisneyfan]

When you start making money - it is a business.
And if you are not a business, how are you paying taxes?
If you donate to bake sales and the PTA you are just nice.

 

[tvguy]

I don't think whether it is a business or not is the issue. The issue is whether it is a practice regulated by Health Department . And that depends on your local health laws. We have people getting cited all the time for giving away homemade sandwiches to the homeless. If they are not prepared in a commercial kitchen, it is illegal.

 

[Jennasis]

If you are selling a product for a profit, you are a business (and are supposed to report the income...legally). Additionally, and likely the more important factor, When it comes to food making/selling, there are strict health codes that must be followed unfortunately.

ETA..while it is a bummer on the outside, GOD FORBID somebody got sick eating something she made, she has no protection, no insurance, no health cert. She'd be absolutely RUINED.

 

[Mackenzie Click-Mickelson]

When you start making money - it is a business.

Actually no not according to the IRS at least. There is a hobby and then there is a business.

According to the IRS:
A legitimate business, according to the IRS:

• Has a primary purpose of "income or profit" and
• the activity is engaged in "with continuity and regularity."

The IRS has a set of guidelines to be used in determining whether an activity is a legitimate business or a hobby:

• Does the time and effort put into the activity indicate an intention to make a profit?
  
  
• Does the taxpayer depend on income from the activity?
  
  
• If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
  
  
• Has the taxpayer changed methods of operation to improve profitability?
  
  
• Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
  
  
• Has the taxpayer made a profit in similar activities in the past?
  
  
• Does the activity make a profit in some years?
  
  
• Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

Intending to make a profit and being considered a legitimate business also includes good business practices such as:

• Setting up a separate business checking account
• Keeping business and personal expenses separate
• Maintaining a good business record-keeping system
• Registering the business with a state as an LLC or partnership.
• Complying with other state and federal tax laws, including sales taxes
• Having regular business hours, maintaining a business website.

For a hobby:
"For tax purposes, a hobby is defined as an activity that you engage in “for sport or recreation, not to make a profit.” Even if you earn occasional income from doing such an activity, the primary purpose must be something other than making a profit."

Your average person who sells baked goods for people on the side doesn't fit into the category of being a business but rather a hobby. Now other departments may have rules as far as inspections though that could be area-specific. Most people who offer to bake goods for other people do so because they enjoy it not because they are trying to make profits on it. Charging money is usually just a way to recoup some costs associated with baking the goods but majority are unlikely to view it as a way to churn profit after profit.

 

[kenthanson]

The second someone sells foodstuff for a profit for a health department stand point. I run a competition bbq team and lots of people in my world go from competition cooking to selling out of there homes for a profit, where my issue is that lots of people do it the right way, they get licensed, they get a commercial food grade cooking area and all the proper permits and all of that costs money so that puts them in the hole against someone who is doing it ILLEGALLY in their kitchen with animals in the house. So who ever reported them might not be an ******* but a small business owner doing it the right way.

 

[tvguy]

The second someone sells foodstuff for a profit for a health department stand point. I run a competition bbq team and lots of people in my world go from competition cooking to selling out of there homes for a profit, where my issue is that lots of people do it the right way, they get licensed, they get a commercial food grade cooking area and all the proper permits and all of that costs money so that puts them in the hole against someone who is doing it ILLEGALLY in their kitchen with animals in the house. So who ever reported them might not be an ******* but a small business owner doing it the right way.

It does depend on your health codes too. My FIL lived about 10 doors down from a guy who made fried pies (like Hostess Fruit Pies) in his garage in a residential area. He sold them to all the mini-marts in the area. You'd drive by in the summer and the garage door would be open and they would be mixing dough and putting filling in the dough and frying them, no screens, open air, no commercial kitchen equipment. No effort to hide it, but the health department in Orange County Texas didn't care.

 

[Skippy918]

Our state has a cottage law where you are allowed to make and sell certain items in your kitchen like cakes, cookies, etc. it’s mainly things that don’t require refrigeration. I think you might need to get a food handler certification.

 

[Colleen27]

My state has a cottage foods law, so small producers can sell baked goods, candies, and certain canned products (high-acid things like salsa and jams) made in an un-inspected home kitchen unless they're clearing more than $25K a year at it or wanting to sell to retailers/wholesalers. As long as it is person-to-person or farmers' market/farm stand sales, it is fine.

 

[DMRick]

Most bake sales are illegal because the items are made in unapproved kitchens. Some people use church kitchens that have been approved to bake. That said, most health departments look the other way since it’s usually fundraisers.
Even if something is not a business, but a hobby, you still need to report all the income over a penny. You may not owe taxes, depending on your tax situation, but even if a friend orders the cake and pays, technically it’s income that should be reported.
The main difference tax wise between a hobby and a business is with a business you file a schedule C and can take off your expenses. If you sold a cake for $25 and it cost you $20, you get to deduct those expenses. If you are a hobby and sell that cake for $25 you should be claiming the entire $25 under misc income. For a business the IRS expects you to make a profit 3 out of five years, but if you keep good records you should be able to prove it’s a real business, just with lots of expenses in the first few years.
Nowadays, selling any food, if you don’t have business insurance, you are really taking a chance of a lawsuit
IMO.

 

[DisneyOma]

Nah. You'd have to count people selling their baked goods for all sorts of events like PTA meetings, fundraisers, etc. Even someone who only sells their baked goods at those times would be considered a business under your comment.

They aren't selling them, they donated to the group, who is selling them. That's different. Not a business, but the health department might want to check it out?

It does depend on your health codes too. My FIL lived about 10 doors down from a guy who made fried pies (like Hostess Fruit Pies) in his garage in a residential area. He sold them to all the mini-marts in the area. You'd drive by in the summer and the garage door would be open and they would be mixing dough and putting filling in the dough and frying them, no screens, open air, no commercial kitchen equipment. No effort to hide it, but the health department in Orange County Texas didn't care.

Ugh, that's gross! Another good reason why I don't buy that kind of stuff at mini-marts, especially when we are in Texas!

 

[Mackenzie Click-Mickelson]

They aren't selling them, they donated to the group, who is selling them. That's different. Not a business, but the health department might want to check it out?

That depends on each event is structured. The poster said: "If she is selling her baked goods - it's a business" Well no it's more complicated than that. As for your health department comment I did clarify and say: "Now other departments may have rules as far as inspections though that could be area-specific."

 

[kaytieeldr]

Actually no not according to the IRS at least. There is a hobby and then there is a business.

This immediately brought to mind http://www.imdb.com/title/tt0080895/