The income tax treatment of a sale of raised inventories is fairly straightforward in most cases. Raised inventories usually have a zero income tax basis, which means that their total value is taxable when they're sold. Treat sales to family members the same as sales to others.
However, there is one important provision of interest to farmers who retired the previous year and don't want to reduce their social security benefits in the year of sale.
The month a person is entitled to begin receiving social security benefits (retirement, disability, Medicare, etc.) is his or her "month of entitlement." Once a taxpayer is entitled to social security benefits, those benefits may be reduced by earned income. The sale of raised farm products is earned income in most cases.
However, farmers are permitted to exclude the sale of stored crops from earned income, regardless of when they are sold after entitlement. More precisely, this is earned income received in a taxable year after the year of entitlement, from services performed during the year prior to the month of entitlement.
Since most crops in Ohio are harvested in the fall, it suggests that farmers should probably delay retirement until their last crops are harvested and stored. Then, if December becomes the month of entitlement, grain income from this last crop sold in the next (or later) year(s) can be excluded from earned income in those years and not reduce benefits. (However, when the crop is sold, it will still be subject to both income and self-employment taxes.)
This rule does not apply to income received by an individual from a trade or business of buying and selling products produced or made by others. There are a number of other rules about self-employment income that also impact this type of transaction.