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  Adding a child to your family dramatically increases the amount of tax deductions and credits for which you are eligible. It is imperative that you are familiar with the deductions to take full advantage of them. The ways in which you apply the deductions as well as their amounts is fairly simple to understand.
  
  

Exemptions

• Having a child adds one exemption to your return which automatically reduces your tax liability in the amount of $3,650 per child (exemption).
  
  

Child Care and Dependent Care Credit

• This credit allows you to reduce your federal income tax by claiming the money you paid someone to care for your children under the age of 13 while you were either at work or out looking for work. To claim the credit, you must have earned income during the tax year in which you claim the credit. The credit allows you to deduct up to 35 percent of the expenses you paid. If you pay your child for dependent care expenses, then your child must not be claimed by you as a dependent and must be over the age of 19.
  
  

Earned Income Credit

• The Earned Income Tax Credit is designed to reduce tax liabilities for taxpayers who have low incomes. Although it is possible to qualify for the credit without children, adding dependents greatly increases the amount of the credit. To claim the credit, your child or children must be under the age of 19 at the end of the tax year or younger than 24 if he is a full-time student. In addition, the EITC credit is a refundable credit, which means that it you could receive a refund even if you have no tax liability.
  
  

Child Tax Credit

• The Child Tax Credit allows for up to a $1,000 deduction for dependents under the age of 17 at the end of the tax year. The only limitation for the credit is for joint filers earning over $110,000, single filers earning over $75,000 and separate filers earning over $55,000. Your will need to complete IRS Form 2441 and attach it to your income tax return to receive the credit. The form will require that you provide the daycare provider's Social Security Number or Taxpayer Identification Number.
  
  

American Opportunity Credit

• The American Opportunity Credit modifies the existing Hope Credit for tax years 2009 and 2010 by allowing taxpayers to claim up to $2,500 dollars for their college expenses or those of their dependents. Joint taxpayers who earn in excess of $180,000 and single taxpayers who earn more than $80,000 will not receive the full credit.