When you’re a self-employed cake baker, Irish tax laws can seem a bit unkind at times. If you’re baking in your free time or work for an employer most of the time, you might not be affected by the differences, but once you become successful, there are marked differences in what you have to pay. The fantastic news is that no matter what level your home-based business is at, a whole lot of your expenses are deductible.
Direct Expenses as a Cake Baker
Direct expenses are those that are accrued solely for a specific business need. The general rule is that the “expenditure must be incurred wholly and exclusively for the purpose of the trade, profession or vocation” in order for it to be deductible. This opens up a lot of space for deductions, but you do have to keep your costs within reason. For example, if you’re charging modest prices for your work and trying to deduct diamonds used as adornments, it’s sure to raise some eyebrows. With that said, you can deduct:
1) Materials: In our industry, materials needed to complete a project can include ingredients, frosting, fondant, cake toppers, columns, and similar items that you purchase to use in your finished cake.
2) Equipment: If you’ve purchased baking equipment, such as mixers, tins, forms, spatulas, spoons, knives, and the like, these are all deductible as well. However, equipment must generally be deducted over a period of years, rather than all at once.
Indirect Expenses as a Cake Baker
Your indirect expenses are the costs you’ll accrue that cannot be tied down to any single project, but rather result from running the business as a whole. This includes:
3) Household Expenses: When you work from home, your house technically becomes an office during the time you’re operating. Things like your energy costs and housing tax would be allowed, but you can’t deduct all of your household expenses; just a proportionate amount of the costs accrued for business operations. For example, if you only use your kitchen while you bake cakes and it accounts for 25 square metres of your 100-square-metre home, then you may deduct 25%.
4) Communications: Internet and phone costs can be handled two different ways. If you use yours exclusively for work, then you can deduct the full amount. If you use your personal connections for business, you would deduct a proportionate amount, just as you would with general household expenses.
5) Vehicles: Whilst most self-employed people don’t have the luxury of deducting vehicle expenses because the cost of traveling to and from a job are not covered, your home is your office. Therefore, you can make a deduction virtually anytime you use your personal vehicle for work. This includes travel to stores to get ingredients and the delivery of cakes. A proportionate amount of your vehicle’s depreciation is also deductible.
6) Business Travel: Anytime you need to travel for business, whether domestically or abroad, a deduction is available. Though there are limits to how much you can claim, things like exhibitions and trade shows, as well as your lodging and train or plane tickets are generally covered.
In order to take advantage of these deductions, you’ll need to keep receipts and detailed ledgers that track each expense as well as what was produced from the investment. It’s also a good idea to check in with a tax advisor to make sure that you’re tracking everything as you should and are adhering to all the current guidelines.
Ready to Kick Your Career as a Cake Baker Up a Notch?
Bakers and Cakers will be launching in just a few short weeks and we’re looking for Ireland’s best. Grab hold of your tax-deductible materials and equipment, hone in your skills, and gather up your photos for when we go live. You can also register to receive updates about our launch or contact us about becoming featured today.