If each child's yearly income, including any capital gains, is more than $1100, the child must file a tax return. The parent can sign the return, for the child.
There is an exception; If the child's only income is from interest and dividends, Alaska PFD or capital gains distributions shown on a 1099-DIV, there is a provision for entering it on the parent's return (not the grandparent-custodian), using form 8814.
But, it is usually best for the child to file a separate return, as qualified dividends and capital gain distributions could be taxed at a higher rate on the parent's return.
