Bakery and Catering Bookkeeping California: CDTFA Sales Tax and COGS

Running a bakery or catering business in Southeast Los Angeles County means handling some of the most food-specific bookkeeping challenges in California's regulatory landscape. Whether you operate a traditional panaderia, a full-service wedding catering company, a small taco cart catering operation, or a home-based cottage food business, your books must track ingredient costs precisely, separate taxable from non-taxable food sales correctly, handle catering deposits as deferred revenue rather than immediate income, and manage payroll for staff. This guide walks through the exact bookkeeping issues that bakeries and caterers in Downey, Compton, Inglewood, and surrounding areas face, with concrete examples from each business model.

For a broader walkthrough of California sales tax rules, see our California sales tax bookkeeping guide. For employee payroll obligations, see our California payroll guide, and for CalSavers enrollment requirements, see our CalSavers employer guide.

CDTFA Sales Tax on Food: Hot vs. Cold, Prepared vs. Unprepared

The California Department of Tax and Fee Administration applies different sales tax rules to different food products, and the line between taxable and non-taxable food sales is precise. Understanding which of your products are subject to sales tax is the first step in setting up CDTFA compliance.

Non-taxable food: unprepared food for home consumption. Unprepared food, meaning food that has not been heated or prepared for immediate consumption, is generally not subject to California sales tax if it is intended for home consumption. Examples include a loaf of bread sold cold, a pastry kept in a display case and wrapped for takeout, cookies baked hours earlier and sold at room temperature, tortillas, dried pasta, and jarred sauces. These items are considered groceries and are exempt from sales tax. For a bakery that sells primarily cold baked goods from a storefront, this exemption applies to most of your retail sales.

Taxable food: hot prepared food and food for immediate consumption. Food that is hot or is prepared and consumed immediately is subject to sales tax. A warm croissant served fresh from the oven, a hot breakfast burrito made to order, a slice of pizza served hot, fresh empanadas sold warm, or a cup of hot coffee are all taxable. The key is the temperature or the immediacy of consumption. A bakery with a cafe that sells hot coffee and fresh pastries with the coffee will have sales tax apply to that transaction. A catering business serving food at a wedding or event is selling prepared food for immediate consumption, and it is entirely taxable.

The gray zone: bakery cafes and pastry-coffee pairings. A common scenario is a bakery that sells cold pastries over the counter but also operates a small cafe with tables, coffee, and heated pastries served with the coffee. This creates a split tax treatment. The cold pastry sold to someone buying for home consumption is not taxable. The warm pastry sold with coffee for immediate consumption is taxable. A well-configured POS system will tag items at the transaction level so that when a cold croissant is rung at the register, it is marked non-taxable, and when a warm croissant and coffee are sold together at the cafe, both are taxable. Without this configuration, you cannot file a defensible CDTFA return because you have no record of which sales were taxable and which were not.

CDTFA seller permit and quarterly reporting. Every bakery or catering business in California must hold a CDTFA seller permit. There is no cost to obtain one, but operating without one is a violation and you cannot file a CDTFA return without it. The permit authorizes you to collect sales tax and obligates you to remit quarterly returns to the state showing taxable sales, non-taxable sales, and tax collected. If your business is growing rapidly or you have high transaction volume, the CDTFA may move you to more frequent filings, such as monthly returns. Confirm your filing frequency at cdtfa.ca.gov.

Cost of Goods Sold for Bakery and Catering Ingredients

This is where most bakeries and caterers either get accounting right or make the most damaging error. COGS for a food business is the cost of all ingredients that directly go into the products you sell, plus packaging and direct labor to assemble those products. Your flour, butter, eggs, sugar, yeast, flavorings, chocolate, nuts, spices, food coloring, oils, vinegars, salt, and any other ingredient that touches the product is COGS. Packaging such as boxes, bags, labels, wax paper, stickers, and labels is also COGS. Delivery supplies, if you deliver catering orders, count toward COGS as well. The overhead items that do not directly go into products (facility rent, utilities, insurance, equipment repair, bookkeeping, marketing) are operating expenses, not COGS.

The fatal mistake: expensing all purchases as COGS immediately. Many small bakeries and caterers expense every ingredient purchase at the time it is bought, without calculating whether the inventory still sits in the cooler or whether it was sold. This overstates COGS and understates profit for the month when the purchases happen, and then understates COGS when the inventory is used later. The result is that your profit-and-loss statement does not reflect your actual profitability, your balance sheet shows zero inventory even though you have thousands of dollars of flour, butter, and other ingredients on hand, and if you ever apply for a loan or show financials to a business partner, they will be misstated.

Per-recipe or per-product COGS tracking. The correct approach is to calculate the ingredient cost for each product or recipe you make. If you make chocolate croissants, you calculate the cost of the flour, butter, chocolate, and other ingredients that go into one croissant. Let us say that is $0.95 per unit. When you sell that croissant for $3.50, the $0.95 is recorded as COGS and the $2.55 difference is your gross profit on that unit. QuickBooks Online Plus and Advanced allow you to set up each product with a standard cost per unit. When the croissant is sold, the COGS is automatically recorded. For a catering business, you can calculate the per-plate cost of the meal, including protein, vegetables, sides, and packaging. When you deliver that plate to a client event, the cost is recorded as COGS.

Waste, spoilage, and breakage. Bakeries have inherent waste. Bread dough rises and some loaves crack or bake incorrectly; pastries break in handling; fresh items become stale and have to be thrown out. This waste is part of your true COGS. A sophisticated bakery bookkeeper will track waste as a separate line item for a few months to calculate a waste percentage, then build that into the per-unit cost of products. If you make 100 croissants and 5 are damaged or unsellable, your true COGS per sellable croissant is higher than if all 100 were saleable.

The picture this creates for your business. When COGS is tracked correctly, you know exactly which products are profitable and which are not. You can see that your chocolate croissants, at a 65 percent gross margin, are much more profitable than your plain croissants at 40 percent margin. You can raise prices where margin is thin or drop products that are losing money. Your balance sheet shows the actual value of inventory you have on hand. Your profit and loss statement reflects the true profitability of the business period by period. And when it is time to file taxes or speak with a lender, your financial statements tell an accurate story.

Catering Deposits: Deferred Revenue, Not Income

Catering businesses operate differently from retail bakeries in one crucial way: customers pay a deposit in advance, sometimes weeks or months before the event. Many catering businesses record that deposit as income the moment they receive it. This is incorrect and creates a material distortion in your books.

The correct treatment: deposits are a liability, not income. When you receive a catering deposit, you have not yet earned it. The customer has paid you $500 for a wedding catering event scheduled for August, but today is June. You do not get to record that $500 as income until the event happens and the service is delivered. Instead, you record it as a liability called deferred revenue (or unearned revenue). When the event occurs and you deliver the catering service, the deferred revenue is converted to actual income on your Profit and Loss.

Example: a $3,000 catering order. You receive a call on June 15 for a wedding catering order on July 20. You agree on a price of $3,000, and the customer sends a $1,500 deposit. Record that $1,500 as a liability (deferred revenue), not as income. On July 20, you deliver the event and invoice for the balance of $1,500. At that point, record the $1,500 as income. Your Profit and Loss for July shows the $3,000 income from that event, and the $1,500 received in June never appears in June's income. This is the accrual accounting treatment, and it is the correct one for any business that receives deposits or pre-payments.

Why this matters for taxes and loans. If you record deposits as income when received, your June income looks artificially inflated, your July income looks artificially low, and your total income for the year is overstated or understated depending on the timing of bookings. A lender looking at a year of catering books with misstated deferred revenue cannot trust the revenue figures. The IRS, during an audit, would want to see that you treated deposits correctly. A bookkeeper who sets up a deferred revenue account correctly is one of the most valuable investments a catering business can make.

Invoicing and Contracts for Catering Clients

Catering service contracts should be written with clarity on what is included, what is taxable, and when payment is due. For bookkeeping purposes, the contract is the source document that drives the revenue entry.

The invoice structure. A catering invoice should clearly break down the service into components: the food cost (per plate or per item), any service charge (which is also subject to sales tax), setup and breakdown fees (taxable), and gratuity if it is being invoiced separately. The total of food, service, and fees is the taxable total for CDTFA purposes. The invoice should also show the deposit paid, the balance due, and the event date. This structure gives your customer a clear understanding of what they are paying for and gives your bookkeeper the detail needed to record the sale correctly.

Catering contracts vs. invoices. A written contract, signed before the event, establishes the agreement and protects both you and the customer. The contract can include cancellation terms, the per-plate cost, any minimum headcount, and add-ons. Once the event is delivered, a final invoice reconciles what was agreed to against what was actually delivered and charges the final balance. The invoice is what goes into QuickBooks and forms the basis of your revenue and CDTFA reporting. If you have been taking catering jobs without a written contract, that is the first thing to fix with your bookkeeper, because an oral agreement leaves too much room for dispute and makes bookkeeping unclear.

Equipment Depreciation and Bonus Depreciation

Commercial bakery and catering equipment is a significant capital investment. A commercial oven can cost $5,000 to $20,000, a professional mixer $2,000 to $5,000, commercial refrigerators and freezers $1,500 to $4,000 each, and a commercial dishwasher $2,000 or more. These are not expenses you deduct when you buy them; they are capital assets that are deducted over time through depreciation.

Standard depreciation. Equipment such as ovens, mixers, and refrigerators is typically depreciated over five to seven years under IRS rules. You record a depreciation expense each year, which reduces your taxable income. A $10,000 oven depreciated over five years generates a $2,000 annual depreciation deduction. A commercial mixer at $3,000 over five years is a $600 annual deduction. These deductions add up and reduce your business's tax liability each year.

Bonus depreciation and Section 179. Under current federal tax rules (2025), you may be able to deduct the full cost of equipment in the year it is placed in service, rather than spreading it over five or seven years. This is called bonus depreciation or Section 179 expensing. For a catering business that buys a $15,000 commercial oven, bonus depreciation could allow you to deduct the full $15,000 in year one instead of $3,000 per year for five years. This is a substantial tax benefit in the year of purchase and requires a conversation with your CPA to calculate the optimal approach for your situation. Your bookkeeper should flag any significant equipment purchase so you and your CPA can discuss the depreciation strategy before the purchase closes the year.

CalSavers Enrollment for Bakery and Catering Employees

If you have employees, including part-time kitchen staff, dishwashers, or event servers, and you do not offer a qualified retirement plan such as a SEP-IRA, Solo 401k, or traditional 401k, California requires you to enroll in CalSavers before December 31, 2026. The CalSavers program facilitates automatic payroll deductions for employee retirement savings. You are not required to contribute employer funds, only to set up the payroll deduction and facilitate the enrollment.

How CalSavers works in payroll. Once enrolled, you deduct a default of 5 percent of each employee's gross pay (employees can choose a different percentage) and remit those funds to CalSavers. The deduction happens before taxes, similar to a traditional 401k. If you have five employees at an average wage of $18 per hour and 30 hours per week, the cumulative CalSavers deduction might be $500 to $600 per month. Your payroll processor or bookkeeper will handle the deduction and remittance. Missing the enrollment deadline results in DLSE penalties, so do not delay. For the full walkthrough, see our CalSavers employer guide.

Cottage Food Law: When You Can Operate From Home

California's Cottage Food Law allows certain food businesses to operate from a home kitchen without a commercial kitchen license, up to an annual revenue limit of $75,000. If you bake cookies, jams, or granola from home and sell direct to consumers, the Cottage Food Law may apply.

What qualifies under Cottage Food. The law allows non-potentially-hazardous foods such as baked goods (without potentially hazardous fillings), jams, dried pasta, granola, certain candies, nuts, and nut butters. It does not allow foods that require refrigeration, such as cream-filled pastries, custard tarts, or foods with egg fillings that need to be chilled. It does not allow meats, seafood, or potentially hazardous prepared foods of any kind. Catering, which almost always involves prepared foods served to groups, does not qualify under Cottage Food. You must operate from a commercial kitchen to do catering.

The $75,000 revenue limit. The annual revenue ceiling under Cottage Food is strictly $75,000. Once you cross that threshold, you can no longer operate under Cottage Food and must move to a licensed commercial kitchen, obtain health permits, and meet all standard food facility requirements. This ceiling is not a soft guideline; it is a hard regulatory limit. Your bookkeeper should track cumulative revenue monthly so you know when you are approaching the limit and can plan a transition to a commercial kitchen if needed.

Bookkeeping under Cottage Food. The bookkeeping is the same as for any other food business: track income from sales, track COGS (ingredient costs), track operating expenses, and file appropriate tax returns. If you are on a cash accounting basis (which most small Cottage Food businesses are), you record income when you receive cash and expenses when you pay them. The advantage of Cottage Food is that your facility costs are zero (you are using your own kitchen), so your operating expenses are lower and your margins can be better. However, once you hit the revenue ceiling, those facility costs disappear and you have to absorb commercial kitchen rent, which typically runs $800 to $2,000 per month or more in Southeast Los Angeles.

Payroll and Employee Costs for Bakery and Catering Staff

Bakeries and catering businesses typically have hourly employees: bakers, kitchen assistants, prep cooks, servers, and delivery drivers. California's minimum wage, applicable statewide, is currently $16.50 per hour (rates increase annually). Some cities in Southeast Los Angeles have set their own local minimum wages above that; confirm the rate for your city at dir.ca.gov.

EDD quarterly filings. California employers file the DE 9 (Quarterly Contribution Return and Report of Wages) each quarter, due on the last day of the month following the end of the quarter. Wages paid from April through June are reported on a form due July 31. Missing that deadline results in EDD penalties and interest. Your payroll should be integrated with QuickBooks so that wages, deductions, and employer taxes automatically flow to the payroll tax account and reconcile to your books.

Employer tax rates and responsibility. As an employer, you are responsible for paying State Unemployment Insurance (SUI), Employment Training Tax (ETT), federal FUTA, federal Social Security (6.2 percent), and federal Medicare (1.45 percent) taxes on top of the wages you pay employees. For a new employer in California, SUI is typically 3.4 percent on the first $7,000 of annual wages per employee. ETT is 0.1 percent on the first $7,000 of wages. FUTA is 6 percent on the first $7,000, reduced by the California SUI credit to 0.6 percent effective rate. These rates change annually and are subject to your employer experience rating, so confirm the exact rates for your business with the EDD.

Wage and hour compliance. California labor law requires you to track hours carefully, pay overtime (1.5x for hours over 8 per day or 40 per week, 2x for hours over 12 per day), honor meal and rest break requirements, and maintain accurate wage records. A bakery with early-morning bakers starting at 4 a.m. needs to ensure those bakers are paid correctly for all hours worked, including breaks. A catering business with servers working an evening event must pay overtime if they exceed 8 hours in a day. Wage and hour violations are the single most common source of DLSE (Department of Labor Standards Enforcement) complaints, and back pay claims can be substantial. A payroll processor or bookkeeper who understands California wage and hour law is essential.

Common Bookkeeping Mistakes for Bakeries and Caterers

In our experience working with bakeries and catering businesses in Downey and throughout Southeast Los Angeles, the most frequent errors are:

• Recording catering deposits as income immediately. Deposits are liabilities until the event is delivered. Recording them as income overstates revenue in the month received and creates a tax problem.
• Not tracking COGS per recipe or product. Expensing all ingredient purchases immediately does not produce accurate profit figures and makes the balance sheet unreliable.
• Treating all food sales as non-taxable. Hot prepared food and foods sold for immediate consumption are taxable. Failing to separate them on your POS and CDTFA return creates errors and compliance risk.
• Mixing personal cash draws with business expenses. Taking money from the register to cover a personal expense without recording it distorts the books and can trigger audit flags if the CDTFA reviews your records.
• Not invoicing catering clients. A catering business that does not issue invoices has no documented proof of what was delivered, what was paid, or what is owed. The books cannot be accurate without invoices as source documents.
• Missing CalSavers enrollment. The December 31, 2026 deadline is real. Missing it results in penalties that dwarf the cost of enrollment.

Frequently Asked Questions

Bakery and Catering Bookkeeping in Southeast Los Angeles County

J.P Bookkeeping works with bakeries, pastelerias (pastry shops), taco catering operations, wedding caterers, event catering companies, and food prep businesses throughout Downey, Compton, Inglewood, South Gate, Huntington Park, Bellflower, and the surrounding areas of Southeast Los Angeles County. Jimmy Paz is a QuickBooks Advanced ProAdvisor bilingual in English and Spanish. He understands the specific obligations that come with running a food business in California: CDTFA sales tax on hot versus cold foods, cost of goods sold tracking for recipes and ingredients, catering deposits as deferred revenue, equipment depreciation, CalSavers enrollment for employees, and cottage food law compliance.

If your CDTFA returns have been uncertain, your catering deposits are not being tracked correctly, or you are not sure whether your product costs are being recorded accurately, a free consultation is the fastest way to see where things stand and what it will take to get your books clean and defensible. Book directly at the link or call (323) 816-0517.

Disclaimer: J.P Bookkeeping is a bookkeeping firm, not a CPA or law firm. For tax planning, legal questions, or regulatory compliance, consult a licensed CPA or attorney. Information reflects publicly available requirements as of June 8, 2026. Confirm current IRS rates and thresholds at irs.gov and ftb.ca.gov before filing.