I would ask the shop owner how she will pay you for the handmade stuff. Then figure your material cost for the item and decide if you are making enough $$$ when selling to her. Only you can decide how much money you want to make off each item. As for labor - it is your time. Ask yourself what else would I be doing (cleaning?) I make and sell bloomer sets on etsys for $21. my cost to make one is about $5 so I am making about $16 on each one. I am retired so i do not put a price on my time. It take me about 1.5hr to make one So basically I am making $16 on each item and the extra $$$ is nice. As for claiming it as income / taxes. that is up to you especially if she is buying them from you directly and you are not a subcontractor.