Baking for people with food allergies is not the hardship that legions of disgruntled hosts and hostesses make it out to be on forum across the Internet. With some common sense, careful reading of ingredients and some cleaning, you too can avoid sending anyone to the hospital. The hardship is worrying about every piece of food you eat that you yourself didn't prepare. This is a subject close to my heart because I've baked for my friend PunkyMama, whose son has extensive and severe food allergies.
Food allergies aren't new, although they might be more common. In the late 80s, I had two friends allergic to nuts, and a friend with a milk sensitivity. My husband had a chocolate allergy that he eventually grew out of; the only lasting effect is a love of carob.
(There is a biological difference between an allergy and a sensitivity like Crohn's disease, although there is no practical difference when baking.)
What are you up against?
First, ask what the allergy or sensitivity is, and how severe. A friend's son can't eat eggs, unless they are baked into something. Challah made with eggs is fine, as long as she tears off the crust with the egg glaze. Some allergies seem completely off the wall (cinnamon); others are all too common (nuts, dairy, eggs). Reactions can be anything from a rash, through asthma, through full-blown shock requiring an epi-pen and a trip to the emergency ward.
No one will blame you for backing out after you find out that eating the wrong thing could send someone to the hospital. It's not that much more effort to bake for someone with allergies, but it can be really scary.
Where danger lurks
Good news: changes to labeling laws make it much easier to spot the most common allergens in a list of ingredients. You don't need to know that casein is a milk protein and whey is what's left of milk after making cheese; the ingredients will list that it contains milk products.
Bad news: you'd be surprised where soy, eggs and milk turn up in our food supply. For example, margarine often has casein for ... some reason clear to the manufacturers, and lecithin (an emulsifier, something that keeps fats and water together) is made from either eggs or soy. Oats often have gluten because of cross-contamination. Depending on the allergens being avoided, this can mean a trip to the vegan section of the supermarket or using the gourmet brands.
Cross-contamination, it's not just for raw meat any more
It used to be you only needed to worry about not letting the chicken defrost into the vegetable drawer. Then you needed to cook your hamburger to medium. Then the eggs were deadly. Now you've got to keep your flour out of your sugar and the nuts away from everything. What's a baker to do?
It's possible I go overboard, but I always avoid cross-contamination. First, I make a habit of not re-using measuring utensils, to prevent dropping one ingredient in the other. When the recipe calls for a half cup of sugar and two-and-a-half cups of flour, I dirty two half-cup measures. When there is a chance that two ingredients have mixed in with each other, like when I dropped ground nuts into the honey jar, I label it.
Second, everything goes in the dishwasher, especially anything that's touched nuts. Mixing bowls, food processor, plastic cutting boards. Things that don't go through the dishwasher don't get used when I bake for someone with allergies. That means using parchment paper instead of durable cookie sheet liners, or the plastic cutting boards instead of the wooden.
When I bake for friends with allergies, I clean the counters and stand mixer with dish soap and water again before starting. No matter how clean it looks. No matter that I cleaned it right after breakfast. Who knows what everyone else was up to? I clean again. It's a habit.
Allergen-free items are baked, cooled, and stored first. At parties, everything with nuts (or whatever provokes a deadly allergic response in a guest), is on a separate plate or even table. If little kids are involved, I keep it out of their reach.
Substitutions & recipes
I prefer baking recipes that are originally dairy, egg or gluten free, rather than baking with egg replacer or gluten-free "flour." Nut-free recipes are perhaps the easiest to find (not the easiest on your nerves, but the easiest to find). Gluten-, egg- and dairy-free can also be found. Too often, the results when substituting are just sub-par, and occasionally disastrous (never try egg replacer in a flour-less cake).
One exception is soy milk and other "dairy" products, which substitute well for animal milk products in baking. Rice milk works, but doesn't give as much rise to cakes and muffins. Margarine doesn't substitute well in things where butter is the dominant flavor, like shortbread.
Bob's Red Mill brand offers a number of gluten-free items, including gluten free oats.
If you yourself don't have a food allergy, the best resource is that person themselves. They know their allergies; they know what brands they trust.
If you have a food allergy and are feeling adrift, check out The Food Allergy Network. A number of friends have given it high praise, especially as a starting point for anyone with newly-diagnosed allergies.
If you are baking for someone with an egg allergy, I strongly recommend Isa Chandra Moskowitz's Vegan Cupcakes Take Over the World. All recipes are egg and dairy free (and there's no reason you need to use soy milk if you don't have a milk allergy), and a couple are also gluten-free.