1- Considering these factors, do you believe it's possible for me to utilize the generated income from the account to cover its annual tax?
this should be easy since income taxes are only a % of income generated. however complicating things considering the age of the child the investment income will be subject to the kiddie tax which means the tax rate will be about the same as her parents. the exception would be if the account generated interest and dividend income but also suffered a substantial capital loss. then you might have to eat into principal to pay the taxes.
2- If this approach is feasible, would it be better to report the income under my own return or file a separate individual return under my daughter's name? if you have made a legitimate gift to your daughter, it's her income. however, as mentioned above its likely subject to the kiddie tax. you may be able to use form 8814 to report her income on your return but that income gets added to your income in computing your taxes and may affect you NIIT taxes. there are limitations to using this form - no earned income for her and no capital gains/losses. Capital gain distributions from mutual funds and RICs are ok. there would be no need to file her own return. the other is form 8615 which is include with her return. her income gets added to the parents income in computing taxes. the parents have to complete their return before hers can be done.
also, you have to file a gift tax return which Turbotax does not do.
