My wife has had some people in our community ask her to make cakes for their parties/weddings/etc - at what point does she need to create a business?

It sounds like her cakes have already created a business for her! She had a business at the point the cakes weren't just an occasional fun thing to do and she started charging for her cakes to make some extra money. The type of entity she wants to operate that business is a different issue.  She has three principal choices:  a Sole proprietorship, a Single Member LLC, and a Sub-Chapter S corporation.  In the sole proprietorship, she operates on her own.  She keeps track of her income and expenses and pays taxes on the net income. A SIngle Member LLC gives her some protection from creditors, although many people will only do business with her LLC if she personally guaranties it.  This has at the advantage of being treated for tax purposes as if she were a sole proprietorship.  A corporation electing to file under Sub-Chapter S, also avoids double taxation.  It involves more formalities, but they are not overly burdensome.  In any event, she will most probably need to file a TC-69 with the State of Utah.  Good luck to your wife.