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Pass the tax test with flying colors

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Q. We pay our daughter money for every “A” on her report card. Our friends say that’s a bad practice, but it seems to be working. But does she have to pay tax on it? C.T., Danbury, Conn.

A. No. You’re rewarding your daughter for her performance in school, rather than paying her for services rendered to you. So, the payment — like an allowance — is in the nature of a gift. Under the annual gift-tax exclusion, you can give your child up to $12,000 a year, no questions asked.

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