Home Baker & Cottage Food Business Tax Deductions: 2026 Schedule C Guide

Published: June 2, 2026 · Reading time: 9 min

TL;DR: A home baking business reports income on Schedule C. Your biggest write-off is ingredients and customer packaging, which are Cost of Goods Sold in Part III — not Line 22. Equipment like mixers and ovens goes on Line 13 via Section 179. Cottage food permits and food-handler cards are Line 23; market booth fees are Line 20b; and mileage to markets and deliveries is Line 9 at $0.725/mile. The home-kitchen office deduction rarely works because the kitchen isn't used exclusively for business — and your state's cottage food sales cap has nothing to do with whether you owe federal tax.

You started selling sourdough to neighbors, then a few birthday cakes, and now there's a weekend farmers-market stall. Under your state's cottage food law, you can legally bake and sell certain foods from your home kitchen — but the moment money changes hands with a profit motive, the IRS sees a business, and that business goes on Schedule C.

The good news: baking is cost-heavy, and almost every one of those costs is deductible. Here's every home-baker write-off for 2026, mapped to the right Schedule C line.

First: Cottage Food Law ≠ Tax Law

These two rule systems get confused constantly:

• Cottage food laws are state food-safety rules. They decide what you can make (typically low-risk, shelf-stable items — cookies, breads, jams), where you can sell, labeling requirements, and an annual sales cap.
• Federal income tax is separate. The IRS doesn't care about your state's sales cap — it cares that you report all business income and pay tax on the profit.

Key point: Being under your state's cottage food revenue limit does not exempt you from reporting income. There's no minimum income floor for Schedule C. If you sell with a profit motive, you report it — and you deduct your costs.

This also matters for the hobby-loss rule: a real business can deduct expenses against income, while a hobby reports income but can't deduct costs. Keeping a permit, records, and a separate account all support business treatment.

Your Biggest Deduction: Ingredients & Packaging (Cost of Goods Sold)

For a product seller, the largest write-off usually isn't a "expense" line at all — it's Cost of Goods Sold (COGS) in Schedule C Part III. COGS is what it cost you to produce the items you actually sold.

For a home baker, COGS includes:

• Ingredients — flour, sugar, butter, eggs, chocolate, fruit, yeast, flavorings
• Customer-facing packaging — boxes, bags, cake boards, labels, ribbon, cellophane
• Cost of any labor directly making the product (if you pay a helper to bake)

COGS reduces your gross income before net profit is calculated, which means it lowers both your income tax and your self-employment tax. Most small cottage operations qualify for the simplified inventory treatment under §471(c), so you don't need formal inventory accounting — but you do need to track what you spent on ingredients and packaging.

What's NOT COGS: parchment paper, dish soap, sponges, and supplies you consume but don't sell go on Line 22 (Supplies). The dividing line: did it become part of the product the customer took home? If yes, it's COGS.

Equipment: Mixers, Ovens & Tools (Line 13)

Durable equipment bought for the business is a capital asset, but you don't have to depreciate it over years. Most bakers expense it in year one using Section 179 or bonus depreciation on Line 13:

• Commercial stand mixer, second oven, proofer, dehydrator
• Sheet pans, cake pans, decorating tools, piping kits
• A dedicated business refrigerator or freezer
• Chocolate tempering machine, dough sheeter

Mixed personal/business use matters. If you also use a mixer for family cooking, you can only deduct the business-use percentage. Equipment bought solely for the bakery is the cleanest deduction — and easiest to defend.

Where the Rest of Your Costs Go

The Home-Kitchen Trap

Every home baker asks: can I deduct my kitchen? Usually no.

The home office deduction requires space used regularly AND exclusively for the business. A family kitchen where you also cook dinner fails the exclusive-use test — and the kitchen is a known audit flashpoint.

What can work:

• A separate pantry or storage room used only to hold business ingredients and packaging.
• A dedicated prep or packaging area (e.g., a converted garage corner) used only for the bakery.

If you genuinely have an exclusive-use space, measure it honestly and use the simplified or actual method. When in doubt, leave the kitchen out.

Mileage: Markets, Deliveries & Ingredient Runs

Driving for the business is deductible at $0.725/mile for 2026 on Line 9:

• Trips to the farmers market and back
• Customer deliveries
• Grocery and restaurant-supply runs for ingredients
• Trips to drop off product at a consignment shop or café

The catch is substantiation. The IRS wants a contemporaneous mileage log — date, miles, destination, and business purpose for each trip. A pile of grocery receipts with no log won't survive a question about your vehicle deduction.

Is Baking an SSTB for the QBI Deduction?

Good news: selling baked goods is not a specified service trade or business (SSTB). Making and selling a physical product is exactly the kind of activity the §199A QBI deduction was designed for, so a profitable home bakery generally gets the full 20% qualified-business-income deduction without the income phase-outs that hit consultants and other service providers.

Recordkeeping That Survives an Audit

1. Open a separate account. Run all bakery income and expenses through one business checking account and card.
2. Track ingredients separately from personal groceries — this is your COGS, and it's the deduction most likely to be questioned if it's commingled.
3. Photograph receipts immediately. Digital receipts are fully IRS-valid.
4. Log mileage as you drive, not in April.
5. Keep your permit, labels, and market agreements as proof you operate a real business.

Frequently Asked Questions

Can a home baker deduct ingredients and supplies?

Yes. The flour, sugar, butter, eggs, and other ingredients that go into products you sell are Cost of Goods Sold (COGS), reported in Schedule C Part III, not as a regular expense on Line 22. Packaging that goes to the customer — boxes, bags, labels, ribbon, cake boards — is also part of COGS. Cleaning supplies, parchment, and items you use up but don't sell can go on Line 22 as supplies. Tracking ingredient costs is the single most important habit for a home baker because it directly lowers your taxable profit.

Is selling baked goods from home considered a business for taxes?

If you sell regularly with the intent to make a profit, yes — even a small cottage food operation is a business and its income goes on Schedule C, with self-employment tax applying once net profit hits $400. Selling occasionally with no profit motive may be a hobby, which means you report the income but can't deduct expenses. Operating under a state cottage food law, holding a permit, keeping records, and selling at markets all point toward a real business, which is what lets you deduct your costs.

Can I deduct my home kitchen as a home office?

This is the trickiest area for home bakers. The home office deduction requires space used regularly AND exclusively for business — and a family kitchen where you also cook dinner usually fails the exclusive-use test. You generally can't deduct the kitchen itself. However, a separate space used only for the business — a dedicated storage pantry, a second prep area, or a packaging room used exclusively for the bakery — can qualify on Line 30. Be conservative here; the kitchen is a common audit flashpoint.

Do I report cottage food income if I'm under my state's sales limit?

Yes. State cottage food laws cap how much you can sell (often by annual revenue) and what products you can make, but those are state food-safety rules — they have nothing to do with federal income tax. The IRS expects you to report all business income regardless of how small, and there's no minimum income floor for reporting on Schedule C. Staying under your state's cottage food revenue cap does not exempt you from reporting that income or paying tax on the profit.

Can I write off my oven and stand mixer?

Equipment you buy for the business — a commercial mixer, a second oven, sheet pans, a proofer, a chocolate tempering machine — is a deductible business asset. Most home bakers expense these in the year of purchase using the Section 179 deduction or bonus depreciation on Line 13 rather than depreciating over years. If an item is used partly for personal cooking, you can only deduct the business-use percentage, so equipment bought solely for the bakery is cleanest. Keep the receipts and note the business use.

Authoritative References

• IRS — Schedule C (Form 1040), Profit or Loss From Business
• IRS — Publication 334, Tax Guide for Small Business
• IRS — Business or Hobby? Answer Has Implications for Deductions
• IRS — Cost of Goods Sold (Publication 334)

Related reading: Schedule C Part III: Cost of Goods Sold · Section 179 deduction for freelancers · Personal chef & private caterer deductions

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This guide is general education for U.S. freelancers and Schedule C filers in 2026. It is not personalized tax advice — bring your specific situation to a CPA or EA.