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So, is her income her own business, or do I need to look into this further?

As Ira implied your returns are linked, so you need to talk even though "kiddie tax" doesn't apply. I doubt there's a college dorm that hasn't already been infected with the "I can get a credit" mania that always pops up this time of year. Make sure your daughter knows that she has to file as a dependent and that the education credits will be on your return, not hers.

Unless, of course, your AGI is too high to take advantage of the credits. If that's the case it may be to the family's overall advantage for her to take the credits (even though she still can't take the personal exemption). If that's the case no one would take her dependency exemption.

A quick first test is to see if her earned income was more than $4850. If not, she has no tax liability even without the credits.

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