Question from a reader:”My kids received a cow as a gift. The cow had calves. The kids sold the calves but the sale was in their name and they received the income. Do I have to report this as Farm Income?”
My answer is that I love questions like this. They MOOve me. Okay, bad puns, aside, if the cow was a gift, that was great. The issue surfaces with the calves. The calves were property of your kids and all things being equal, if they didn’t sell the calves, they wouldn’t have an issue, since you can keep a gift and not declare taxes on it. You may have to feed and milk the results of this particular gift but it is too cool a tax question to not ponder about.
If everything was in the kids name and they sold the cows, they have entered into a contract which they decided to enforce. Not knowing their ages, I will assume they are minors and have opted not to rescind the contract. They therefore have made a gain on the sale of their cows. Remember the basic tax rule from the IRS? You are taxed on all worldwide income. Income based on age isn’t a requirement. The kids made a sale and made a profit on it from selling the cows. For those who don’t know, minors can rescind contracts and that makes adults who get into a contract with them liable for being on the hook for bad business decisions. That is one reason you are asked if you are over 18 in some business transactions that don’t involve wild time, drugs or rock and roll. Assuming that the gift wasn’t from your brother or somebody who was a partner on the farm, you may not have a farm income issue but the kids have an income received issue.
Depending on how much cash they received they may still be below the filing requirements so they may get off tax free though somebody had a lot of cow flop to clean while the calves were growing up. Keep the tax questions coming gang!
Important Stimulus Related Update:
Just so everybody knows – From reading what is in the Federal, not state proposed package for the economic stimulus that Congress is trying to get through, there will be a proposed increase in unemployment benefits and possible medical extended coverage. There will not be as of now a cash stimulus rebate. I rebate that there will not be a cash rebate. There will be a possible $500 tax break for single people and $1000 for couples who are employed. That means that possibly for the first part of 2009, if you are employed, you will have $20 or so less taken out of your paycheck for Federal taxes if it goes through. There are other more global proposed items but I figured you guys and gals wanted to get the actual cash part that was coming directly to us. More as it develops.
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Kim Isaac Greenblatt
Are my kids calves tax deductible? Moo