Mmmm...a very artistic question. And as it is an artistic question, the answer depends on what image you want to bring forth.
That said, here's what I would do:
Looking at your image, I noticed many of the lines are outlined in black. (Basic outline of the squirrel, teeth, claws, bag, etc). If you want to keep the "cartoony" image, I would definitely cut all of those lines. I would bevel based on which side of the line is highlighted. In other words, if one side of the line is light, I would bevel the other side. This will maintain the perspective of the lines near claws, etc. Be careful! Consider twice, bevel once.
For all of the lighter, non-black lines, I would model, or use light artistic cuts in the leather, depending on the look you want, and your confidence in each skill. Personally, I would make an exception for the flames, which I would cut. Because I like the look of cool cut flames. Heh. But that's me. They could also be modeled.
But feel free to throw out my advice if you want a non-cartoony version of your cool squirrel.
Good luck!