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Every dollar you spend on ingredients, packaging, booth fees, and gas driving to the farmers market is a potential tax deduction. Most cottage food vendors leave money on the table at tax time because nobody told them what they could write off.
This guide covers the specific tax deductions that matter for home food vendors — not generic small business advice, but the actual expenses you're already paying that can lower your tax bill.
The short version: Cottage food vendors can deduct ingredients, packaging, market fees, mileage (72.5 cents per mile in 2026), equipment, and a portion of home expenses like utilities. You report your income and expenses on Schedule C of your personal tax return, and you pay taxes on your profit — not your total revenue. A vendor earning $15,000 with $7,230 in tracked deductions cuts their taxable income nearly in half. Keep receipts for everything — the IRS won't accept estimates.
If you sell food from home, the IRS considers you a business — even if you don't have an LLC or a business license. You report your income and expenses on Schedule C, which gets filed with your regular Form 1040 tax return.
You pay taxes on profit, not revenue. If you sold $12,000 worth of cookies but spent $5,000 on ingredients, supplies, and market fees, you pay taxes on the $7,000 profit — not the full $12,000. That's why tracking deductions matters.
Hobby vs. business — this distinction matters. The IRS treats hobbies and businesses differently. If the IRS decides your food operation is a hobby, you can't deduct expenses against your income. To qualify as a business, you should:
You don't need to be profitable every year. But you do need to show that you're running a real business, not just baking for fun and occasionally selling a cake. If you're turning your food hobby into a business, keeping records from day one helps prove your intent.
Everything you buy specifically for products you sell is deductible. This is usually the largest expense category for cottage food vendors.
Deductible ingredients include:
Deductible supplies include:
The key rule: The expense must be for items used in your business. If you buy a 25-pound bag of flour and use half for your business and half for family baking, you can only deduct the business portion. The simplest approach is to keep business and personal ingredient purchases separate.
Equipment you buy for your food business is deductible, but how you deduct it depends on the cost and whether your family also uses it.
Common deductible equipment:
The personal-use problem: If your family also uses the stand mixer for Sunday pancakes, you can only deduct the business-use percentage. If you estimate 80% business use, you deduct 80% of the cost. The easiest way to avoid this is to have equipment dedicated to your business.
Expensing vs. depreciating: For items under $2,500, you can deduct the full cost in the year you buy them (the de minimis safe harbor election). For more expensive equipment, you can use Section 179 to deduct the full cost in year one, or depreciate it over several years. For most cottage food vendors, the immediate deduction makes more sense.
If you use part of your home regularly and exclusively for your food business, you can deduct a portion of your home expenses. For cottage food vendors, this usually means a portion of your kitchen.
There are two methods:
Multiply the square footage of your business space by $5, up to a maximum of 300 square feet ($1,500 maximum deduction). This is the easiest approach and requires no calculation of actual home expenses — no gathering utility bills, no calculating mortgage interest, no tracking repair costs.
If your kitchen is 150 square feet and you use it exclusively for business during production hours, you'd deduct $750. Most cottage food vendors choose the simplified method because the paperwork savings are worth more than the slightly higher deduction you might get with the regular method. Unless your actual home expenses are high relative to your home's size, the simplified method is usually the smarter choice.
Calculate the percentage of your home used for business, then apply that percentage to your actual home expenses.
For example, if your home is 1,500 square feet and your kitchen is 150 square feet, your business-use percentage is 10%. You can then deduct 10% of:
The "exclusive use" challenge: The IRS requires that the space be used "regularly and exclusively" for business. Since most families also use their kitchen for personal meals, this deduction can be tricky. Some vendors set up a separate prep area (a converted garage, basement, or dedicated room) that's easier to claim as exclusive business space.
Even if you can't claim exclusive use of your kitchen, you can still deduct the portion of utilities that your business uses. Running your oven for 6 hours to bake 200 cookies uses more electricity than a family dinner. Track your production days and hours — if you bake three days a week for six hours each session, you can calculate a reasonable percentage of your electric and gas bills to attribute to business use. The key is having documentation that supports your numbers, not just a rough guess.
Every trip you make for your food business is deductible. This adds up faster than most vendors realize.
The standard mileage rate for 2026 is 72.5 cents per mile. That means a 30-mile round trip to the farmers market is worth $21.75 in deductions.
Deductible trips include:
How to track mileage: Keep a simple log with the date, destination, purpose, and miles driven. A notebook in your car works. Free apps like MileIQ or Stride also track trips automatically using your phone's GPS.
Example: If you drive to the farmers market every Saturday (30 miles round trip) and make two ingredient runs per week (15 miles each), that's roughly 60 miles per week. Over a 30-week market season, that's 1,800 miles — worth $1,305 in deductions at the 2026 rate.
You can also deduct the actual costs of operating your vehicle (gas, insurance, maintenance) instead of using the standard rate, but most vendors find the standard rate simpler and often more generous.
Everything you spend to sell your products is deductible.
Booth and market fees:
Display and setup equipment:
Marketing and selling costs:
Payment processing fees:
Homegrown doesn't charge monthly fees or listing fees — you only pay a small transaction fee when you make a sale. Those transaction fees are fully deductible as a business expense. Market fees are deductible, but you also need to collect and remit sales tax at farmers markets — the rules vary by state.
These smaller expenses are easy to overlook but fully deductible.
If you formed an LLC for your food business, the formation fees and annual filing fees are also deductible.
Here's a realistic example of how deductions work for a cottage food vendor.
Scenario: You sell baked goods at farmers markets, earning $15,000 in revenue for the year.
Your deductible expenses:
Your taxable profit: $15,000 - $7,230 = $7,770
Without tracking deductions, you'd owe taxes on the full $15,000. With deductions, you only owe on $7,770.
Self-employment tax: As a sole proprietor, you pay self-employment tax (Social Security and Medicare) of 15.3% on your net profit. On $7,770 of profit, that's about $1,189. On $15,000 without deductions, it would be $2,295. Your deductions saved you over $1,100 in self-employment tax alone — before counting income tax savings.
Income tax savings depend on your tax bracket and other income. But the principle is the same: every deductible dollar reduces both your income tax and your self-employment tax.
You don't need accounting software or a CPA to track your food business expenses. But you do need a system.
What the IRS requires:
The simplest approach:
How long to keep records: The IRS can audit returns filed within the last three years, so keep records for at least three years after filing. Most accountants recommend keeping them for seven years to be safe. Digital records make this easy — scan or photograph your receipts, save them in a cloud folder organized by year, and you never have to worry about faded paper receipts or lost files. At the end of each tax year, create a new folder and move on.
Apps that help: Wave (free accounting software), Stride (free mileage tracking), or even a Google Sheets spreadsheet. University of Minnesota Extension also provides free record-keeping resources for small food producers. You don't need QuickBooks unless your business is earning enough to justify the cost.
If you're starting a food business with no money, the good news is that tracking expenses doesn't cost anything — it just takes a few minutes each week.
Set up your free Homegrown storefront and start selling your homemade food online. Transaction fees are automatically tracked in your seller dashboard — one less thing to log manually.
Yes. The $600 threshold is for when platforms are required to send you a 1099 form — it's not a tax-free threshold. You owe income tax on all business profit regardless of amount. However, if your total net self-employment income is under $400, you don't owe self-employment tax.
Yes, ingredients used for recipe development and testing are deductible as research and development expenses. Keep notes about what you were testing and why. If the recipe doesn't work out and you eat the results, that's still a legitimate business expense — product development is part of running a food business.
If you expect to owe $1,000 or more in taxes for the year, the IRS expects you to make quarterly estimated tax payments. The due dates are April 15, June 15, September 15, and January 15. If you don't pay quarterly and end up owing more than $1,000, you may owe a small penalty.
Yes. If your business expenses exceed your income, you have a net operating loss. This loss can offset other income on your tax return (like wages from a day job). However, if you show a loss year after year, the IRS may question whether your food business is actually a business or a hobby.
Not necessarily. Many cottage food vendors file their own taxes using tax software like TurboTax or FreeTaxUSA, which walk you through Schedule C. But if your business is growing, you have complex expenses, or you're unsure about specific deductions, a one-time consultation with a tax professional ($100 to $300) can pay for itself in deductions you might have missed. That consultation fee is also deductible.
Yes. Samples are a marketing expense. Deduct the cost of ingredients used to make samples. If you give away 50 sample cups of salsa at a market, the ingredient cost for those samples is a deductible business expense.
*This article is for informational purposes and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.*
*Homegrown helps home food vendors sell online with a free storefront — every transaction fee is tracked automatically in your dashboard, making tax time easier.*
