Child Tax Credit

• The child tax credit allows you to take a credit up to $1,000 per dependent child, as of the 2010 tax year. The IRS only allows you to take a child tax credit for dependent children younger than 17 and extends eligibility to biological, foster or adopted children. To qualify, your newborn must have lived with you for more than six months during the tax year and you must meet income limits.
  
  

Dependent Exemption

• The IRS enables you to take a $3,650 tax exemption for each dependent child during the 2010 tax year. Tax exemptions allow you to reduce your taxable income, which can lower your tax liability. You can take the exemption for your dependent biological, adopted or foster children. You can only claim the dependent exemption for children who live with you for more than six months during the tax year.
  
  

Medical Expenses

• You may qualify for a tax deduction for the medical expenses of your newborn child and other family members. The IRS allows a tax deduction for medical expenses related to diagnosis, prevention and treatment of mental and physical illnesses. Additional medical expense deductions can include prescription drug costs, health insurance payments and transportation costs related to medical care. If you are required to pay the alternative minimum tax, you can only deduct medical expenses above 10 percent of your adjusted gross income, as of the 2010 tax year. Taxpayers not required to pay the AMT can take the deduction for medical expenses above 7.5 percent of their AGIs.
  
  

Child and Dependent Care Credit

• If you earn income and pay someone to care for your newborn, you may qualify for the child and dependent care credit. To qualify, your child must be 12 years of age or younger and the care must be provided so you, or your spouse if filing jointly, can search for a job or work. As of the 2010 tax year, you can take a maximum credit of 35 percent of your childcare expenses, not to exceed $3,000 for one child or $6,000 for more than one child. To qualify, your newborn must live with you for more than six months during the tax year.
  
  

Adoption Credit

• If you adopt a child, you may qualify for a tax credit for your adoption costs. According to Intuit, you can take an adoption credit if you have an income up to $222,520 during the 2010 tax year. The IRS offers a credit of up to $13,170. You can receive the maximum credit, regardless of your actual adoption costs, if you adopt a special-needs child. Expenses eligible for the tax credit can include court costs, adoption fees, travel expenses and attorney fees.