I think this is how this works. I have three options (please confirm if my understanding is correct).
1) I pay $5500 to my child. I show that as a business expense. She does not file a tax return.
2) I pay $5500 to my child. I show that as a business expense. She files a tax return and does not end up paying any tax because she claims personal exemption etc. But then I cannot claim her personal exemption on my return.
3)I pay $5500 to my child. I show that as a business expense. She files a tax return and does not end up paying any tax because she claims personal exemption etc. I ALSO claim her personal exemption on my return.
Which option is correct?
