The tax joys of parenthood

Tax credits
Your growing family also could make you eligible for several tax credits. The great thing about tax credits is that they reduce your tax liability on a dollar-for-dollar basis. A credit of $500 could cut your $1,000 tax bill in half. If you owe no tax, some credits even will get you a refund.

Most parents qualify for at least one of three popular credits: the child tax credit, the additional-child tax credit and the child- and dependent-care credit.

The child tax credit and its companion additional-child tax credit can cut your tax bill by several hundred dollars for each youngster you claim. For the child tax credit, there are no records to keep or extra forms to file to get on your 2007 return a $1,000 credit for each child.

The credit's basic requirement is that your child be younger than 17 and claimed as a dependent on your return. You will have to fill out a work sheet to figure out your exact credit amount, especially if you make a lot of money, since the credit is reduced for high earners.

If you claim tax relief for more than one kid, you must fill out Form 8812 to compute your additional child tax credit, but the paperwork could well be worth it. This tax break allows filers who owe little or no taxes to get a refund check from the IRS.

Working parents who put the kids in day care can file for the child and dependent care credit to recoup some of those costs. This tax break applies to care for children younger than 13, but the precise credit is based on a limited amount of your actual child care expenses. You can use only up to $3,000 you spent to care for one child, $6,000 for two or more kids.

Another popular tax break helps parents whose bundle of joy arrived via an adoption. Adoptive parents can get up to a $11,390 credit on their taxes to cover expenses. Like parenting, though, claiming the credit is not easy. The exact year you can claim your expenses depends on several factors, including when they were paid, when the adoption was finalized and even whether your new son or daughter is a U.S. citizen or resident.

Education expenses
College costs are skyrocketing, prompting many parents to start saving as soon as the little one arrives. Uncle Sam offers several tax-favored ways to help.

With a Coverdell education savings account, a redesigned version of the old education IRA, parents (or grandparents or even just friends) can put away up to $2,000 per year (total, not apiece) for a youngster's schooling. While adults contribute to the savings plan, a child age 17 or younger is named as the account's beneficiary.

The contributions aren't tax-deductible, but they and their earnings can be withdrawn tax-free as long as they are used to pay eligible schooling costs. And while many of these accounts are opened expressly to pay university costs, Coverdell cash can be used for some pre-college expenses, including tuition, room and board, and books and computers for public, private or parochial primary schools.