Interesting scenario that is difficult to assess without running through a good tax estimator for 2013. Not sure if this info will be helpful but
1. I worked for a CPA firm for several years preparing individual tax returns. We ALWAYS prepared children's income on a their own return, never include it on parents return as it increases the parents AGI which can effect eligibility for numerous tax credits and deductions. Doesn't matter if child can claim their own dependency, always do a separate return for each child.
2. Technically, you don't get to choose whether a person can claim themselves, the facts and circumstances dictate who can claim themselves or who else can claim them. Unless your children ACTUALLY provided more than half their own support, they can not legally claim themselves on their own tax return. Of course, a little planning, given sufficient personal resources of the child, could address this issue.
3. See: http://www.google.com/url?sa=t&rct=j...55617003,d.cWc
for more info concerning Kiddie tax and ACA