Assume Karen Is 12 Years Old and Her Only Income

Assume Karen is 12 years old and her only income is $2,500 of interest income from a bank account with money her parents have given her to save for college. What are the options Karen has for filing her tax return?

A) Karen must file a separate tax return and report all of her interest income at her separate rate of tax.
B) Karen must file a separate tax return and report all of her interest income at her parents' rate of tax.
C) Karen can file a separate tax return or her parents can elect to include her in their tax return, paying tax on $500 of her interest income at their rate of tax.
D) Karen can file a separate return or her parents can elect to include her in their tax return, paying tax on the full $2,500 of her interest income at their rate of tax.