Raising your $290,000 Baby Part 2

Transportation Cost through age 17: $20,670 to $38,670
Transportation can eat 13% to 14% of the total. This includes the purchase and finance charges of vehicles, repair and fuel expenses and insurance.
What you can do
Avoid buying a new car. Estimates hold that the value of a new car drops by as much as 40% in the first two years of ownership. Instead, look into a used car such as a relatively new model that's coming off of a one- or two-year lease. It's likely to be in good shape, may have some of its original warranty in place and, best of all, should be available at a huge discount off its original price.
After you've found the car, don't forget to shop for the best insurance rates. The cost of auto insurance can vary by several hundred dollars for the exact same level of coverage. Use our auto insurance planner to find the best deal. Here's how to cut the costs of insuring a teen driver.
Tax tips
If your children work for you and use your car for business purposes, then the business percentage (business miles over total miles) of your gas, insurance, repairs, interest, maintenance, registration, depreciation, tolls and parking are all deductible. Alternatively, you can deduct your business miles at 48.5 cents for 2007, plus tolls, parking and interest expense for your car.
Put your children's cars in your name. It reduces the insurance you have to pay (multiple-vehicle discount) and allows you to deduct any business expenses incurred on your return. The downside is that you may be liable for any accidents. That's why you have auto insurance . . . which is deductible to the extent the car is used in business.
Clothing Cost through age 17: $8,430 to $12,720
Clothing accounts for about 6% of the total costs at higher incomes and 4% at lower incomes.
What to do
New parents quickly discover the cottage industry of saving and sharing newborn and toddler clothes, so take full advantage to skirt the outlandish expense of buying clothes for your little one(s). Also, seek out some of the thousands of manufacturer outlets across the country where you can buy perfectly good clothes at upward of 50% off their original price.
The Internet also offers outlet-shopping opportunities -- at Bluefly, for example, shoppers can choose from dozens of designer labels at discounts as large as 75%.
Buy neutral-colored clothing that can be shared easily among siblings, regardless of gender. Shop sales, and shop at the end of season, so you're not paying a premium for your children's clothes. Finally, as your children get older and start generating some sort of income -- baby-sitting, shoveling snow, perhaps a part-time job -- make it clear to them that, should they want a designer-label piece of clothing, they'll have to cough up at least part of the cost, if not all of it.

Clothing is not deductible. However, advertising is deductible if you are self-employed. If you are an employee, remember that you can be self-employed with a second job. Schnepper had shirts made for his children to promote his book, with "Ask My Dad How to Pay Zero Taxes" printed on the front. That's tax-deductible advertising. Think Century 21 and their gold jackets.

How does your baby measure up?A dietitian from Childrens Hospital Los Angeles explains how to gauge your baby's growth and weight gain.
Health care Cost through age 17: $11,520 to $17,250.
Health care represents 6% to 8% of the total costs, but those numbers are misleading. For some families, it's a nonissue; for others, the numbers can be mind-boggling.
What to do
Because much of this expense comes from health insurance premiums, it pays to shop around if you have the option of choosing your insurance carrier. Monthly premiums can vary a lot. Sites such as eHealthInsurance.comalso offer information on health maintenance organizations (HMOs) and preferred provider organizations (PPOs).
From there, you can trim your health-care expenses by going with the largest deductible you can handle. Also, check to see if your premiums are lower if you pay semiannually or annually instead of more frequently. If the cost of prescription drugs seems off the chart, check to see if Internet-based drugstores can supply you for less -- two are Drugstore.com and Rx.com. If you can't afford health insurance, you can find free care.
If you work for a large company, make certain you use your employer's cafeteria plan if one is available. This lets you set aside pretax dollars for expenses such as deductibles, copayments and noncovered items such as dentistry and eyeglasses. It doesn't reduce the cost of health care directly, but it shaves money off the taxes you pay on money that does go toward medical bills.
Tax tips
Medical expenses are deductible to the extent that they exceed 7.5% of your adjusted gross income. Such expenses include not only doctors and hospitals, but also dentists, prescription drugs, medical insurance and any necessary medical equipment.
If you are self-employed, 100% of your health-insurance costs can be deducted, without any reduction, even if you don't itemize.
Anything you pay for the diagnosis, cure, relief, treatment or prevention of any disease is deductible.
Child care/education Cost through age 17: $13,710 to $38,220
These expenses account for 10% to 13% of the overall cost -- up several percent from last year. Big caveat: The figures do NOT include college.
What to do
If staying at home full time isn't feasible, look into forming a cooperative with other parents. For instance, each parent could agree to look after all of the children in the group for a certain number of hours a week. However, this may require a potential investment in day-care equipment and local licensing if enough children are involved. Alternatively, if you have a parent of your own nearby, see if he or she would be willing to do some baby-sitting.
Tax tips
Child care: If you and your spouse both work (or one is disabled or a full-time student), then you qualify for the child-care credit. That credit, a dollar-for-dollar reduction in your tax, ranges from a minimum of 20% to a maximum of 35% of the first $3,000 you pay for a child under age 13. For two or more children, the credit tops out at $6,000. That could mean, if you have two children in care, an additional $2,100 in your pocket.
Here's where it gets to be fun. Not only does the credit apply to child care and baby-sitting, but it counts any home care necessary for you both to work. Therefore, if you hire a maid to clean your house because you work, the cost of that maid counts toward the credit! The cost of a day camp can be deducted too, but not if it includes overnight stays.
Don't forget the child tax credit. For each child under age 17, you will get a credit of $1,000 for 2007. The credit phases out as your income exceeds $110,000 ($75,000 if single or head of household).
Education: Set up an education IRA or invest with various state prepaid tuition plans where the income is either tax deferred or completely excluded.
Alternatively, or in addition, invest some dollars under your children's names. The income will be taxed to them at their lower rates.
Once they enter college, the Hope Credit and the Lifetime Learning Credit will reduce your taxes further. The Hope Credit, for the first two years of college (freshman and sophomore years), is 100% of the first $1,100 in qualified expenses and 50% of the next $1,100, or $1,650 out of the first $2,000 paid. The Lifetime Learning Credit, which covers the last two years of undergraduate studies plus any graduate courses, is 20% of the first $10,000 paid. (See "Tax breaks to get your youngster through Yale.")
When they graduate, interest on any student loans may be deductible -- even if you don't itemize. You can deduct up to $2,500 in student-loan interest above the line.
Miscellaneous Cost through age 17: $13,890 to $33,690
This last category takes in 10% to 12% of the total cost and includes things such as personal-care items, entertainment and reading materials.
What to do
Stock up on personal-care items at bulk warehouses where the cost is cheaper per item. To trim the expense of fun, check out entertainment clubs where, for a flat fee, you get significant discounts at restaurants, movie theaters, fast food joints and theme parks. To cut down on the expense of books, rely on your local library or used-book stores. Likewise, if you're in the mood to rent a movie, many libraries have substantial tape collections.
If your children are interested in summer camps, check out local community organizations rather than sending them off to two-week camps that can run into the thousands of dollars. Music? Rent the instrument to begin, with a purchase option if your child sticks with it. Don't forget about pawnshops and used equipment, either. And, as with other sorts of more discretionary expenses, expect older children earning part-time income to contribute something.
Tax tips
Instead of paying strangers to mow your lawn or clean your pool, pay your children. If you are self-employed, hire your children to work for you. The IRS has validated children as young as age 7 to work for their parents' unincorporated businesses. For 2007, you can employ and pay your children as much as $5,350 (plus another $4,000 if they opt for a deductible IRA) each, tax-free to them and deductible to you. If your business is not incorporated, and your children are under age 18, you don't have to pay Social Security, Medicare, state unemployment or disability, either.
Let them use these dollars, tax-deductible to you, to pay for these miscellaneous expenses. Then smile and think about how much you are going to cost them when you get older.

By MSN Money staff