@ClassicRockerDad -
I totally get that you don’t want to claim her.
You cannot claim her if she does not live with you. That is what you want. So just make sure she doesn’t live with you. Since she in fact lives in her own apartment and (I assume) isn’t going to return home to live after graduate school, just make sure she gets a drivers license, etc. so that she establishes legal residency and so her documentation is in order.
Go to the IRS website and read the rules very carefully about when a person can claim themselves as an exemption and can get the full standard deduction. The 50% test is just one prong of the test. I think I am right about this, but please confirm it for yourself.
This should reduce your child’s taxes since she can now claim the exemption and the standard deduction. Doesn’t help with the kiddie tax issue though.
I think you are 1/2 right about this. The intent of the kiddie tax was to go after investment income, not fellowships. However, it looks like fellowships are caught up in this rule even if that wasn’t the intent. I didn’t know that until now.
TA ships and RA ships would not be subject to kiddie tax since they usually are considered earned. Only fellowship stipends are subject to kiddie tax.
However, if I am reading the rules right then even if she provides more than 50% of her own support you will still have to pay kiddie tax on fellowship stipends. Being dependent or independent doesn’t matter. Your scheme to give her money in 2016 that she can live off of in later years doesn’t help. You will have to pay the kiddie tax until she is over 24 or no longer a full-time student. Not to pay it would be tax evasion. So pay it.