Home-Based business tax deductions, 2021 for cottage food businesses

Posted by Damian Roberti on

Home-Based business tax deductions, 2021 for cottage food businesses. If you are a food entrepreneur and you are selling food from home, I'm going to go over over 20 different tax deductions that you could potentially be taken advantage of this year. If you are starting a food business from home, and we're going to get into that 20 right now.

All right, so we'll come back. It is Damon from marketing food online. So I'm going to go over 20 different tax deductions that you can actually take advantage of. We're operating a food business from home. If you were a cottage food business, or if you're just getting started with any type of food related business from home, these are going to be some great home-based business tax deductions for the year 2021. Now keep in mind a lot of these, these are not in any specific order, but a lot of these are definitely ones. You need to keep track of, write them down, take them to your accountant. Okay. Of course I'm not an accountant. I'm not giving you any tax advice, but I'm definitely giving you some tips on when I experienced this. When I had my food business, I started long, long time ago at home.

There was a lot of beneficial tax reasons for doing it, actually. And I'm going to go over those and give you that list. Now, like I mentioned, these are not in any particular order, so you definitely need to get a pen and paper, write these down and they will definitely help you out. So number one, mortgage or rent, if you're actually renting or even have a mortgage, a portion of that can actually be written off as a tax expense or tax deduction. Excuse me, because of the fact that you're operating a business from your home or from wherever you were renting that home from that is a amount of money that can definitely be beneficial for your taxes. So keep track of that and bring that to your account and let them know that you have that. And you're starting a food business from home portion of that.

Now it varies by state of course, and it has a handful of different implications based on where you are, but your mortgage and rent are definitely deductible. Number two, your phone and your internet. Now, anything that you're doing online, even though you're a cottage food business, and you're not technically selling products online and shipping them over state lines. If you have a phone that you're operating the business from, you're talking to vendors. If you're ordering supplies online through your internet, your phone and internet as a utility can be a tax deduction for your home-based business. So definitely keep track of what you have and bring that again. A portion of that can be used as an expense. Number three, the room that you're operating your business from now, even a portion, believe it or not of the square footage in your kitchen. If you were operating your, your cottage food business from your kitchen, and obviously you're preparing your food, a portion of the square footage can be used as a tax deduction.

And if you have a separate room or bedroom, that is a office. So if you're operating a portion, which I recommend you dedicate a specific room in your home to your office, and when you do that, make sure that you let them know, let your accountant know this square footage of the area that you're into. And you're utilizing because that is a tax deduction. Number four, your water and electricity. Yes. Believe it or not anything that you're using from your electricity or your water to operate your food business from a portion of that monthly bill can be utilized as a deduction. Because again, you're utilizing your space at home as a food business and you are a business. Okay? So a portion of that can be written off as a tax deduction, which is a huge help now. And some states cottage food businesses, or home-based food businesses are not required to have even permits or licenses, believe it or not.

But I highly recommend that you create an LLC. Okay? And this is basically for liability purposes. You're still going to open yourself up to liability issues. If you're not a business and you're not in an LLC. If somebody were to have an allergic reaction or get sick, you personally could be held liable for that. When you create an LLC, which by the way, if you need to do that down below this video, there's some great links to a couple of websites where you can actually do this online in less than about 10 or 15 minutes. But creating an LLC will allow you to have that protection. They can only go after somebody gets sick or gets an allergic reaction and they want to Sue you. They would go after the business. And they could only go after the business because an LLC is a limited liability corporation.

Now, even though cottage food laws throughout many states, don't require this. I highly recommend you look into it. Okay? So the cost, by the way, that's what I want it to get to the cost of your LLC is a tax deduction because it is a business related expense. Number six. So cottage food, business license. Now, as I mentioned, some states don't require permits or licenses, but some actually do. And when you start paying money out for these, these permits or licenses to operate your cottage food business in 2021, you're going to find that those expenses, you need to keep the receipts for, because those are tax reductions. That is a business expense. Okay? Next up. If you invest in any type of business card brochure or any type of flyer information on paper that you give out at a farmer's market. Now, keep in mind this, you go to a farmer's market and you're doing business and you're handing customers information, all of that stuff that you've expended on.

And you've paid for whether it's a business card or brochure information that leaflet, whatever that is, all of that printing services, you need to keep a receipt because that is a tax deduction. Okay? So next up, if you actually paid any fees at farmer's markets or events. So when you go to a farmer's market, if you go to a local event, sometimes they're going to take a percentage of your sales, or they may actually charge you a fee. They can charge you a $200 fee of $50 for you. Whatever that may be. Those are again, expenses for your home-based food business. As you operate locally, and you go to these events, you need to keep track of those receipts, because that is an expense for your business. Next up number nine is going to be labels. Now whether you are printing your own labels, because you're going to buy labels and print them, all of the ink, all of the printers actually even labels themselves.

If you're having someone print them for you, well, then you keep the receipt from that printing company. If you're presuming yourself, all of those expenses to print labels for your package food products, when you're selling them as a coach for product, that too is an expense. So you need to keep track of those receipts as well, because that is a tax deduction. Number 10 packaging. Now, whatever it is that you're putting your food product in under the cottage food law, you have to obviously have your product package. So if it's a bag, a container, a glass jar, it doesn't matter what it is, but the food packaging that you're paying for, if you're buying them online or buying them in a local store, keep your receipts. That is a tax deduction for your whole base business. Okay? Next up your ingredients. Obviously you're going to have ingredients when you're preparing, let's say a cake or cookies or any type of edible item.

You're making chocolate covered pretzels, everything that you're doing, those ingredients, all of those receipts need to be capped because those receipts are going to be tax deductible. They are expenses for your business. Okay? Number 12. Now, although you are under cottage food laws and you can't necessarily sell a product online, many states allow you to sell online, but have to deliver it locally. Meaning that you can't ship the product through interstate commerce. You can't ship it from Florida to California, let's say, but if you have a website and someone made it for you and developed it or built it, and you're paying them several hundred, even a couple of thousand dollars to do this, you need to keep your receipts. Again. This is a tax deductible expense for that home-based business because you're having a web designer build your product. Okay? What, what basically your website.

So number 13, just to add on to number 12, if your website is being hosted, this is something that a lot of food entrepreneurs that start from home don't realize, but you need to have hosting. What that means is even though you have a website that doesn't mean that the website can just magically appear every month. You have to pay a service to have it up. If it's Shopify, if it's a website hosting under Weebly's, it could be web hosting for Kodak web hosting for Wix. All of these are services that will actually keep your website live each month. Well, you have to pay for that. And normally that could be anywhere from 30, 40, even $50 a month. And let me tell you, at the end of the year, operating a home-based business at home, this is a tax deduction you need to be aware of because that can be nearly five to $600 in expenses just to have a website online.

Okay? Number 14, advertising. Now, obviously you have to advertise and yes, believe it or not. You can advertise through Facebook ads online because you can promote people within Facebook. You can promote your website. I mean, in Facebook and promote your actual business at local events, you have brochures. Like I mentioned before, business cards, those are advertising fees. Okay. Anything related to promoting or marketing or advertising, those need to be those receipts need to be kept because those are tax deductions. Okay. Number 15 classes or online courses. Now, if you were, let's say you're winning into a custom cake business, and you're good at making cakes, but you want to learn some different courses. You want to take classes, any type of expense that you have related educating yourself that has to do with the business, that you are actually partaking in those online courses and classes are tax deductible, because those are expenses that you're putting out to better your business and or for your business.

So any of those, make sure you print up a receipt. You keep track of those expenses, online classes and courses. Now next up is similar to this. Number. 16 is actually books and periodicals, any type of magazine that you're buying a subscribing to that has to do with bettering your business or your business itself, or books that you happen to pick up, let's say on entrepreneurship or starting a business online, any of those books that you buy, those are actually going to be books that are going to be tax deductible as well. Definitely take a look at that and bring that up to your accountant and ask them about how much you can deduct from that. I believe it's the full amount. So anything that you're going to buy that can better you for your business, that is a tax deduction, number 17 permits and licenses, any permits or licenses that you would need or are required to have, and not even under cottage food.

If you have to have a local city or county business license or permit to operate that cottage food, you need to make sure that those expenses, those are the receipts are kept because those are tax deductions as well. So any permit or additional licenses to what you're doing, making your food product from home, all of that or business expenses. So keep that in mind. Number 18 mileage, believe it or not. Yes. Let's say that you are driving your car every single weekend for multiple days back and forth to farmer's markets festivals, or you're doing a local events, keep track of all the mileage because the IRS actually allows you to write off a certain amount of miles based on your business. Bring that up to your accountant and keep track of that. Every single mile you put on your car or truck, because of the way you're operating your business or picking up ingredients or doing anything related to your business, keep track of those miles, because that is a tax deduction as well.

Even if it's a home based business, number 19, buying a vehicle, believe it or not. Yes. If you put out a huge expenditure to buy a used, let's say use van. And that van is going to be dedicated to your cottage food business and carrying all of your food products to these events, going to farmer's markets, picking up large amounts of ingredients or packaging, and you're using that actual vehicle and you bought it for that purpose. Then make sure you let your accountant know that you have a vehicle that you've purchased for your home-based business. And in 2021, that's going to be a really strong tax deduction when it comes down to writing that off. Okay, next up number 20 business credit cards, believe it or not. In some cases, the interest that you pay on the balances you have on your business cards. If you have a business credit card dedicated to your cottage food business from home, you have the opportunity to take that interest and check into that and bring it up to your accountant.

Ask them about that too. Again, more though, they'll know more specifics about how it actually writes out getting written off and how that gets deducted, but definitely keep that in mind that business credit cards have a benefit to having them. Okay. So number 21 gas, yes. Believe it or not any gas that you put in your vehicle, you need to keep receipts for it. That is being used for your business. That is something that's also an expense as well. So if you're using a dedicated, like I said, van or a truck or a car, and that is something that you're using three or $400 a week in gas, because you're doing a lot of events or local stuff. That is something you need to keep track of as well. Okay. Lastly, number 22 domain name. Yes. Believe it or not. When you get a website, you have to have, what's called a domain name in order for you to register the domain name and obviously have it annually. You need to pay for that. That is not something that's free every year. We're charged a certain amount. If you've registered, that domain would go daddy or domain name with Weebly, Shopify, whatever that may be with your web website hosting, they're going to charge you annually for that. That is something to that.

So this is a quick list of 22 items. There's quite a few other ads. I would imagine that you can definitely do as well. But I think these are the most important ones, especially when you are creating a home-based business in 2021 and looking for some great tax deductions under cottage food laws, or creating some type of food business from home, keep these in mind and of course, write them down, keep track of them. And if you guys have any questions about tax deductions or creating your LLC from home under the cottage food laws, definitely let us know down below and we'll get to your questions as soon as possible. If this was a helpful video, please do give us a big thumbs up and I'll see you guys on our next video.

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