Other than claiming your child as a dependent on your taxes, the two biggest tax breaks that children can provide are the dependent-care credit and the child tax credit.  If you pay for babysitting or daycare for a child under 13, you can claim a tax credit if you and your spouse both work or if one parent is a full-time student or disabled.  A single parent with earned income is also eligible.

A few other things to make sure you document before you turn your taxes over to your accountant, are that nursery school and kindergarten costs are usually eligible, but private school expenses in first grade or higher are not; overnight camp expenses are not eligible, but day camp expenses are (with some cost restrictions, see your CPA).

Then there is the kiddie tax:  Your children are inevitably going to fall into a lower tax bracket, so they will pay less on investments.  The kiddie tax enables the first $700 of unearned income for children under 14 years to be considered tax free; the next $700 will only be taxed at his/her rate.  All additional income above that will be taxed at the parents’ rate.  After age 14, the kiddie tax disappears and all investment income is taxed at the child’s rate.  Just remember, when applying for financial aid for college rolls around, investments in your child’s name may make him or her ineligible.  Deciding the best ways to invest to provide maximum return and tax breaks can be discussed with your financial adviser.