Final answer:
A parent can include a child's income on their own tax return if the child's income is between $1,100 and $10,500. The child's income should be from interest and dividends and meet other IRS criteria. Understanding basic taxation, adjusted gross income, and the earned income tax credit is crucial in this context. The correct answer is option c.
Step-by-step explanation:
A parent may elect to include a child's income on the parent's return if the child's gross income is more than $1,100 and less than $10,500. This rule allows for the simplification of the tax filing process where the child's income is relatively small and primarily consists of interest and dividends. It's important to consider that certain conditions must be met; for instance, the child must be under a certain age, and the income must be from interest and dividends only.
To understand the underlying principles, we need to revisit the basic concepts of taxation. The tax code specifies how adjusted gross income is calculated and what deductions and exemptions apply. For most taxpayers, taxable income is determined by subtracting a standard deduction and exemptions from their adjusted gross income.
Programs like the earned income tax credit (EITC) are also part of the tax landscape to help low-income earners. The EITC provides a refundable tax credit that increases with earned income up to a certain threshold, then gradually phases out. This is designed to avoid a 'poverty trap,' where increased earnings could result in a loss of government benefits.