To sell homemade products legally in the United States, match what you make to the right rulebook: food goes through your state’s cottage food law, cosmetics and children’s items go through federal safety and labeling rules, and almost everything requires a local business license, correct labels, and attention to zoning, insurance, and taxes. The specific steps depend on your product, your state, and how much you sell, but the framework is the same for every home-based seller.
Start with the product category, because that determines which agency has jurisdiction and how heavy the compliance load will be.
Cottage Food Rules if You Sell Food
Every state has a cottage food law that lets you produce and sell certain foods from a home kitchen without a commercial food license. What differs is nearly everything else: which foods qualify, how much you can sell, and where you can sell it.
Most states allow shelf-stable items such as baked goods, jams, honey, and candy. More permissive states allow almost anything that doesn’t contain meat, seafood, or dairy requiring refrigeration. Restrictive states stick to a narrow list.
Annual revenue caps are the most common limit. They range from as low as $2,500 in the strictest states to $250,000 in the most permissive, with many states landing between $25,000 and $75,000. Cross the cap and you generally need a commercial kitchen and full food establishment licensing. Some states use tiers, where higher sales trigger extra registration or inspection.
Where you can sell is the other big variable. Many states allow farmers’ markets, roadside stands, and community events. Some allow direct sales from your home. A growing number permit online advertising and ordering, though the handoff often has to happen in person. Interstate shipping of cottage food is generally prohibited, because a cottage food exemption is a state-level permission that doesn’t cross state lines. Ship across a state border and you’re likely into full commercial food licensing and FDA jurisdiction.
Even under a cottage food exemption, sanitary production is expected. The federal Current Good Manufacturing Practices set the baseline: clean hands, clean surfaces, no pests, chemicals stored away from food, and no one handling food while sick or with open wounds.1eCFR. 21 CFR Part 110 – Current Good Manufacturing Practice in Manufacturing, Packing, or Holding Human Food Some states go further with periodic kitchen inspections or rules about pets in cooking areas during production.
Before you produce a single jar, check your state’s department of health or agriculture website for the current allowed-product list, sales cap, and venue rules. A number of states also require a food handler’s course or food safety training before issuing any permit.
Cosmetics, Skincare, and Handmade Soap
If you make lotions, lip balm, salves, or other cosmetics, the Modernization of Cosmetics Regulation Act (MoCRA), enacted in 2022, brought cosmetics under closer FDA oversight. It requires cosmetic facilities to register with the FDA, list their products, keep safety records, and report serious adverse events.
A small business exemption exists for companies with average gross annual cosmetic sales under $1 million over the previous three years, adjusted annually for inflation. Qualifying small businesses are exempt from the registration and product listing requirements.2FDA. Registration and Listing of Cosmetic Product Facilities and Products
The exemption has limits. It doesn’t apply if you make products that contact the mucous membranes of the eye, products that are injected, products for internal use, or products designed to alter appearance for more than 24 hours. Eye cosmetics are subject to full MoCRA registration regardless of revenue. Exempt businesses still must follow all labeling rules and should track any adverse reactions customers report.
Children’s Products and CPSC Testing
Products designed or intended primarily for children 12 and under carry the heaviest regulatory burden, and homemade doesn’t get you out of it. Under the Consumer Product Safety Improvement Act, manufacturers of children’s products must have their items tested by a CPSC-accepted third-party laboratory and issue a Children’s Product Certificate certifying compliance with all applicable safety rules.3Consumer Product Safety Commission. Children’s Product Certificate This applies to Etsy sellers the same way it applies to large manufacturers. Lead in paint, small parts hazards, and flammability standards cannot be self-certified at any scale.
A small batch manufacturer exemption exists for businesses with gross revenue of roughly $1.4 million or less from all consumer product sales and no more than 7,500 units of a single product in the prior year. Qualifying firms must register with the CPSC annually and can use alternative testing methods, including in-house testing, for certain lower-risk requirements. Critical safety tests such as lead paint and small parts still have to go through a third-party lab.4Consumer Product Safety Commission. Small Batch Manufacturers and Third Party Testing Most cottage-scale producers fit inside the small batch thresholds, but you have to register to claim the exemption.
Business Licenses, Permits, and Zoning
Regardless of what you sell, expect to line up at least one license or permit before opening for business.
- A general business license from your city or county. Fees range from under $50 to several hundred dollars.
- A cottage food permit or registration with the state health department, if you sell food. Many states charge no fee; a handful charge a few hundred dollars including required certifications.
- A food safety certification, if your state requires it. These are often available online for a modest fee.
- A sales tax permit or seller’s certificate, if your state charges sales tax on your products. Applications are usually free.
Zoning is the piece new sellers often overlook. Your city or county code decides whether a business can operate from a residential property. Most residential zones allow some form of home-based business but attach conditions: limits on customer visits, no exterior signage, no non-resident employees, restricted operating hours.
Many jurisdictions require a home occupation permit before you start. The application asks about the nature of the business, expected traffic, and what you store on site. Some localities distinguish between low-impact operations (no customers, no employees) and higher-impact ones that get additional review or a public hearing. The permit is usually inexpensive but can take weeks. Operating without it can bring fines, a cease-and-desist order, or neighbor complaints that escalate fast.
Contact your city or county clerk’s office for local licensing and zoning rules, then check the relevant state agency for product-specific permits.
Labeling Your Products Correctly
Labels are where regulators look first, and they’re where many home sellers slip up.
Food Labels
Federal rules require ingredients listed in descending order by weight. Ingredients present at 2% or less by weight can be grouped at the end of the list with a statement like “Contains 2% or less of,” but must still be disclosed.5eCFR. 21 CFR Part 101 – Food Labeling The label must show the net quantity of contents prominently on the principal display panel, expressed by weight, measure, or count.6eCFR. 16 CFR Part 500 – Regulations Under Section 4 of the Fair Packaging and Labeling Act
Allergen labeling is not optional. Federal law identifies nine major food allergens that must be declared: milk, eggs, fish, crustacean shellfish, tree nuts, peanuts, wheat, soybeans, and sesame. The label must either include a “Contains” statement listing the allergen sources or identify them clearly within the ingredient list. For tree nuts, fish, and shellfish, the specific species has to be named (almonds rather than “tree nuts”).7U.S. Food and Drug Administration. Food Allergies
Most state cottage food laws add their own required elements: producer name and address, a statement that the food was made in a home kitchen (often with prescribed wording such as “Made in a home kitchen that is not inspected by the state”), and a production or best-by date. Some states mandate exact wording, so check yours.
Cosmetic Labels
Federal cosmetic labeling applies regardless of business size. Ingredients must be listed in descending order of predominance, with fragrances and flavors permitted as “fragrance” or “flavor.” The declaration must appear in letters at least 1/16 of an inch tall and be readable under normal purchase conditions.8eCFR. 21 CFR Part 701 – Cosmetic Labeling Labels also need the product identity, the manufacturer’s name and address, and the net quantity of contents.
Protecting Yourself: Business Structure and Insurance
Most home sellers start as sole proprietors by default. That means there’s no legal separation between you and the business. If a customer has an allergic reaction and sues, your personal bank account, car, and home are exposed.
Forming a limited liability company creates a wall between business and personal assets. LLC formation fees vary by state, generally between $35 and $500 for the initial filing, with most states also charging an annual or biennial report fee.
The liability wall isn’t automatic. Courts can pierce the veil and hold you personally liable if you treat the LLC as an extension of yourself. Common ways that happens:
- Mixing personal and business money by paying household bills from the business account or depositing business income into a personal one.
- Skipping formalities such as an operating agreement, basic decision records, or a separate business bank account.
- Undercapitalizing the LLC and running up debts it could never realistically pay.
Keep a separate bank account, keep basic records, and treat the LLC as its own entity. That discipline makes the protection real.
Insurance is the second half of protecting yourself, and a common assumption trips people up: your homeowners policy almost certainly does not cover business activities. Standard homeowners policies exclude liability tied to business operations, offer minimal coverage for business equipment and inventory, and provide none for business interruption. A kitchen fire that destroys inventory or a customer injured during pickup can leave you paying out of pocket.
Three options fill that gap:
- A home business endorsement added to your existing homeowners policy. Cheapest option, limited coverage.
- A standalone product liability policy covering claims that your product caused harm. Food businesses typically find $1 million per-occurrence and $2 million aggregate policies starting around $300 per year. Many farmers’ markets require proof of product liability coverage.
- Commercial general liability, which combines premises and product coverage. More expensive but appropriate if customers visit or you sell at multiple venues.
If you sell at markets or events, check their insurance minimums before you buy a policy, so you don’t end up with coverage that doesn’t qualify.
Sales Tax When You Sell Online
Online selling introduces sales tax obligations that catch many small sellers off guard. Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can require out-of-state sellers to collect sales tax based purely on sales volume into that state, even without any physical presence there.9Supreme Court of the United States. South Dakota v. Wayfair, Inc.
The most common threshold is $100,000 in sales or 200 transactions in a state during the current or prior year, though some states set higher thresholds and others have dropped the transaction count. Once you cross a state’s threshold, you must register for a sales tax permit there, collect the right tax on sales into that state, and file returns on that state’s schedule.
Platforms like Etsy and Amazon handle tax collection in most states on behalf of their sellers, which simplifies things for marketplace sales. If you sell through your own website, the responsibility falls entirely on you.
For food products, remember that cottage food laws generally don’t cover interstate sales. Even when your state allows online orders, delivery usually has to stay inside state lines.
Income Tax and Self-Employment Tax
Income from selling homemade products is taxable no matter how small the operation. There’s no federal minimum that exempts hobby-turned-business income from reporting. If your purpose is earning income and you do it regularly, the IRS treats it as a business.
Sole proprietors report income and expenses on Schedule C, filed with Form 1040. Gross receipts minus allowable business expenses gives you net profit, which flows into your personal return. An employer identification number is free from the IRS and required if you hire employees, but many sole proprietors get one anyway to avoid giving out a Social Security number to suppliers.10Internal Revenue Service. Get an Employer Identification Number
Self-employment tax is the cost that blindsides new sellers. If your net earnings from self-employment hit $400 in a year, you owe self-employment tax on top of income tax. The rate is 15.3%, covering both the employer and employee shares of Social Security (12.4%) and Medicare (2.9%).11Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) The Social Security portion applies to net earnings up to $184,500 in 2026; Medicare applies to all net earnings with no cap.12Social Security Administration. Contribution and Benefit Base
On $10,000 of net profit, that’s roughly $1,530 in self-employment tax before income tax. You can deduct half of the self-employment tax when calculating adjusted gross income, which helps. But if you’re not setting aside money for estimated quarterly payments, the annual bill can be a shock.
Tracking expenses is the most effective way to bring the bill down. Deductible expenses include ingredients and raw materials, packaging, shipping, equipment, booth fees, and business mileage. If you use a dedicated space in your home exclusively and regularly for the business, you can take a home office deduction. The simplified method allows $5 per square foot up to 300 square feet, for a maximum $1,500 deduction.13Internal Revenue Service. Simplified Option for Home Office Deduction The actual expense method deducts the business percentage of utilities, insurance, repairs, and depreciation, and can yield more but requires detailed recordkeeping.14Internal Revenue Service. Publication 587 (2025), Business Use of Your Home Exclusive use is the trip wire: a room that doubles as a guest bedroom doesn’t qualify.
Keep receipts and a simple bookkeeping system from day one. Reconstructing a year of expenses at tax time almost always leaves deductions on the table.