All income from selling food — whether through Instagram DMs, a farmers market booth, or a Homegrown storefront — must be reported on your tax return. The IRS does not distinguish between formal and informal sales. If you sold $600 or more in food from your home kitchen, you need to report it as self-employment income on Schedule C of your federal tax return. The good news is that you can also deduct your business expenses, which means you only pay taxes on your profit, not your total sales.
The short version: Report your cottage food income on Schedule C (Profit or Loss from Business) attached to your personal tax return. FarmRaise's best practices for tax season walks through Schedule C vs. Schedule F, self-employment tax triggers, and which expenses are deductible. You are considered a sole proprietor unless you formed an LLC or corporation. Deduct all legitimate business expenses: ingredients, packaging, labels, insurance, ordering platform subscriptions, booth fees, mileage, and equipment. You will owe self-employment tax (15.3%) on your net profit in addition to regular income tax. If you expect to owe $1,000 or more in taxes, make quarterly estimated payments to avoid penalties. Keep receipts for everything. The IRS does not care that you sold cookies through Instagram — they care that income was earned and expenses were legitimate.
Yes. The IRS requires you to report all income, regardless of how you earned it or what platform you used. There is no minimum threshold below which you can ignore your food sales income. Even if you made $500 selling jam to neighbors, that income is technically reportable.
In practice, here is how enforcement works:
The simplest way to think about it: if you earned money selling food, it goes on your tax return. The only question is how much you can deduct to reduce your taxable income.
Many cottage food vendors panic when they first hear about tax obligations, but the reality is that taxes on a small food business are usually modest. If you made $5,000 in total sales and had $2,500 in expenses (ingredients, packaging, booth fees), your taxable profit is $2,500. At a 15.3% self-employment tax rate, that is $383 in SE tax. Your regular income tax depends on your total household income, but the cottage food portion is typically a small addition to whatever taxes you already owe from a regular job.
The vendors who end up with tax problems are not the ones who made mistakes. They are the ones who ignored their food income entirely and got surprised by a 1099 they cannot explain. Reporting your income and claiming your deductions from the start is always easier than trying to reconstruct a year of untracked sales. UW Extension's record-keeping guide covers three practical methods — paper notebook, spreadsheet, and outsourced bookkeeping — so you can pick the one that matches how you work.
Cottage food income is reported as self-employment income. Here is the step-by-step process:
Before you file, you need two totals:
Schedule C (Profit or Loss from Business) is a one-page form attached to your personal tax return. Key sections:
If your total expenses were less than $5,000 and you had no employees, no inventory at year end, and one business activity, you may qualify to use Schedule C-EZ (simplified version). However, most cottage food vendors are better off using the full Schedule C to capture all deductions.
In addition to regular income tax, self-employed individuals pay self-employment tax, which covers Social Security and Medicare. The self-employment tax rate is 15.3% on your net profit.
This catches many first-time vendors off guard. If you made $5,000 in net profit from food sales, you owe approximately $765 in self-employment tax on top of whatever your regular income tax rate is. You can deduct half of your self-employment tax from your adjusted gross income, which slightly reduces the sting.
If you expect to owe $1,000 or more in total taxes for the year (including self-employment tax), the IRS requires you to make quarterly estimated payments. The due dates are:
| Quarter | Period Covered | Payment Due |
|---|---|---|
| Q1 | January-March | April 15 |
| Q2 | April-May | June 15 |
| Q3 | June-August | September 15 |
| Q4 | September-December | January 15 (next year) |
Estimate your quarterly payment by dividing your expected annual tax by four. It does not have to be exact — just a reasonable estimate. If you underpay, you may owe a small penalty at tax time, but it is better to pay something quarterly than nothing.
Every dollar you spend on your food business reduces your taxable income. Here are the common deductions for cottage food vendors:
Flour, sugar, butter, eggs, fruit, spices, honey — every ingredient you use in products you sell is deductible. If you buy a 50-pound bag of flour and use half for your business and half for your family, deduct 50%.
Boxes, bags, jars, labels, stickers, tissue paper, ribbon, and any other packaging materials used for products you sell. All fully deductible.
Your Homegrown subscription ($10 per month = $120 per year), payment processing fees (2.9% + 30 cents per transaction), and any other business software costs are fully deductible. If you use a Homegrown storefront for ordering, every dollar you pay to the platform is a business expense.
Your cottage food liability insurance premium is fully deductible. If you pay $299 per year for FLIP insurance, that is a $299 deduction. See our guide to the best cottage food insurance providers for options.
Every booth fee you pay — typically $20 to $75 per market day — is deductible. Over a 30-week market season at $50 per week, that is $1,500 in deductions.
If you drive to the farmers market, to pick up supplies, or to deliver products, you can deduct mileage at the IRS standard rate (67 cents per mile in 2025 — check current rate for your tax year). A round trip of 20 miles to the market, 30 times per year, is 600 miles = $402 in deductions.
A stand mixer, food processor, canning equipment, extra oven, shelving, and other equipment used for your business are deductible. Items under $2,500 can typically be deducted in full in the year you buy them (under the de minimis safe harbor election). Larger purchases may need to be depreciated over several years.
Business cards, signage, QR code printing, Facebook ad costs, and any paid promotion of your food business are deductible.
The home office deduction can technically apply to the portion of your kitchen used exclusively for business. However, this deduction is complex and can increase your audit risk. Most cottage food vendors skip it because the deduction is small relative to the hassle and risk. Consult a tax professional if you want to claim it.
The best time to set up your record-keeping is now, not April 14. Here is a simple system:
If you use an ordering platform like Homegrown, your income is tracked automatically. Every order is recorded with the amount, date, and customer. At year end, you have a complete record of all online sales.
For cash sales at the market, keep a daily log: date, location, total cash received. A simple notebook or phone note works. The key is recording it the same day, not trying to remember in March.
Keep every receipt. Photograph receipts with your phone immediately (paper receipts fade). Use a dedicated folder in your photos app or a free receipt-scanning app.
Categorize expenses monthly:
| Category | Examples |
|---|---|
| Ingredients | Flour, sugar, butter, eggs, fruit, spices |
| Packaging | Boxes, jars, labels, bags, stickers |
| Subscriptions | Ordering platform, accounting software |
| Insurance | Liability insurance premium |
| Market fees | Booth fees, market memberships |
| Transportation | Mileage to markets and supply runs |
| Equipment | Mixer, oven, shelving, canning tools |
| Marketing | Business cards, signage, ads |
Use a free mileage tracking app (or a simple notebook in your car) to log every business-related trip: date, destination, purpose, and miles driven. The IRS requires contemporaneous records, meaning you need to track mileage when it happens, not estimate it at year end.
If you are reading this in February and did not track a single receipt or sale last year, here is your recovery plan:
Going forward, set up proper tracking from day one. It takes 5 minutes per week and saves hours of stress at tax time.
If you are still managing sales through DMs and Venmo, switching to an ordering platform like Homegrown not only simplifies your ordering but also creates an automatic income record for tax purposes. Every transaction is logged with date, amount, and products sold. For a comparison of ordering platforms, see our guide to the best online ordering systems for cottage food.
For most cottage food vendors earning under $10,000 per year in net profit, filing taxes yourself using a service like TurboTax or FreeTaxUSA is sufficient. Schedule C is straightforward if you have organized records.
Consider hiring a CPA or enrolled agent if:
A tax professional typically charges $150 to $300 for a Schedule C filing. If that fee helps you capture deductions you would have missed, it pays for itself.
If you want to understand how your business structure affects taxes, our guide on whether you need an LLC to sell food from home covers the tax implications of sole proprietorship vs LLC.
Technically, yes. All self-employment income is reportable regardless of amount. However, you will not receive a 1099 from payment platforms for amounts under $600, and the IRS is unlikely to audit micro-income. Most vendors begin tracking and reporting once they start selling regularly and consistently.
You need Schedule C (Profit or Loss from Business) and Schedule SE (Self-Employment Tax), both attached to your standard Form 1040 personal tax return. If you make quarterly estimated payments, you use Form 1040-ES.
Yes, if the practice batch is directly related to your business (testing a new recipe you plan to sell). Ingredients for products you only bake for your family are not deductible. If you buy ingredients that serve both purposes, deduct only the business portion.
It is not legally required, but it is strongly recommended. A separate business checking account makes it dramatically easier to track income and expenses, and it provides cleaner records in case of an audit. Most banks offer free or low-cost business checking accounts for sole proprietors.
If your business expenses exceed your income, you have a net loss on Schedule C. This loss can offset other income on your tax return (like wages from a regular job), reducing your overall tax bill. However, if you show a loss for three or more years out of five, the IRS may classify your activity as a hobby rather than a business, which limits your deductions. Keep your business profitable or be prepared to demonstrate a profit motive.
Sales tax requirements are separate from income tax and vary by state and product type. Some states exempt cottage food from sales tax. Others require collection. Platforms like Homegrown handle sales tax calculation and collection automatically. If you sell directly through DMs, you are responsible for determining and collecting the correct amount yourself.
Tips and voluntary donations from customers are income. Report them as part of your gross income on Schedule C. If a customer pays $25 for a $20 order and says "keep the change," that $5 is income. Some vendors avoid this by pricing products at round numbers so there is no tipping scenario.
You report all income on one federal Schedule C regardless of where you earned it. For state taxes, you generally report income in the state where you reside if you are a sole proprietor operating a cottage food business. If you regularly sell at markets in a neighboring state, check whether that state requires you to file a non-resident return or collect their sales tax. Most cottage food vendors selling at markets within driving distance are only dealing with one state, but cross-border selling can add complexity.
