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"Also, if someday her interest, dividends, and cap gains DO exceed $700, I can tack on Form 8814 to my own return to pay her taxes, because that is the only income she earns. Right?"

When the child's TOTAL investment income (including any taxable/reportable interest from the savings bonds) exceeds $700, you can use Form 8814 and pay the tax. But if the child is 14 or older, it is probably more beneficial to file a separate return for the child since the income will be taxed at her rate instead of your tax rate.

About the interest on savings bonds, you don't have to recognize that income until the savings bonds are redeemed.

Keith

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