Major life changes, such as marriage, divorce, or the death of a spouse, create major changes in your finances as well -- but one of the most dramatic adjustments you and your bank accounts will need to make is to a new child in the family. The average amount families spend to raise a child from birth to 18 is over $250,000, so it is vital that you utilize every tax break and tax advantage that is offered to parents.
It is never too early to begin planning for all of the financial considerations of adding a child to the family. To get started on the right foot, you should apply for a social security number for your new baby immediately after his or her birth, because until your child has an SSN, you will not be able to claim him or her as a dependent for the tax benefits. Once your child has a social security number, you can claim an exemption for a dependent on that year's taxes. This reduces your "taxable income" amount in the same way an itemized deduction would.
Depending on your income and the eligibility of your child, you may also be able to get a Child Tax Credit. The amount and availability of the Child Tax Credit varies from year to year, so you have to be sure you have current information when doing your taxes. This year, the maximum credit you can receive is $1,000. Because it is a credit and not a deduction, this means if you owe no money in taxes, you can actually get the credit amount back as a tax refund.
Another consideration is education finance planning. If you set up a 529 savings account in your child's name (specifically for education expenses), the amount that you deposit into the account each year can be deducted from your taxes. An additional benefit of the 529 account is that any interest that it earns is tax free.