Question: My wife and I are expecting our first child later this year and I have been budgeting to see what we can afford for child care. It looks like the average cost of childcare is ~$1000-$1200/month. This is a huge expense for us that we did not have before. We cannot afford to have either myself or my wife take care of the child instead of working so we must use a daycare.

I have a budget and we save ~$1700/mo without spending anything on things like dinners out, movies, tools for the house, etc.

I am not willing to forgo our decent chunk of savings each month to pay for child care as only saving ~$500/mo scares me. 

We bought a house last year and we were wondering what kind of benefit we would see around Tax time for: 1) Living in our own house for (1,2,3...) year(s), 2) Having a child. I know I can increase the number of depends on my tax forms once the child is born, what should I expect in my paycheck once that happens? 

I have a car payment and I was hoping to pay that off as fast as possible to try to get rid of some debt to increase our cushion a little. 

1. Is there anything else I can be doing?
2. What kind of return will I see from renting vs owning for a year(2, 3..)
3. How will my income change once i claim another dependent?

thanks,

Answer: 
I feel like you're getting overwhelmed with all of the variables and possible scenarios and are trying too hard to optimize your taxes and budget. I would suggest simplifying things and not trying to polish too much.

When expecting a child or any other significant life changing event, it is often wise (and helpful emotionally) to save up as much cash as possible in the event that things do not go as planned. Yes, you could reduce your withholding in preparation of a lower tax bill due to an extra dependent, but you won't know *exactly* how much that impact will be until you file your taxes, so I would not decrease them *too* much until you have a better understanding of what expenses will be deductible or what tax credits you will be eligible for.

If it were me, I would put as much of the $1,700 per month in something relatively safe and liquid (e.g. not bitcoin or single stocks, *maybe* a 6-month CD or low-risk mutual fund, but not something that's going to freak you out by losing 10% of its value). 

When the baby comes, if something unexpected were to occur (medical bills, etc.) you have the reserves to cover it without panicking and making an unwise decision out of fear. If *nothing* goes wrong - GREAT! you have reserves that can be used to pay off the car, or pay down the mortgage or other debts. 

Come tax time, You will likely have a decent refund that can ALSO be used to improve your situation. You can also adjust your withholding if you want to realize the tax savings throughout the year instead of getting a large refund.

Now, for the daycare expense. If you cannot afford for one of you to stay at home, then you have an expense that you need to plan for. I realize that tapping into your savings budget is disheartening, but you have three options:

* Increase income (or sell stuff)
* Reduce daycare expenses (finding someplace cheaper? getting help from friends?)
* Reduce other expenses (or savings)

Mathematically, there's really not another way around that.
There are tax benefits that *somewhat* offset the costs, but they're fairly small:

* Exemptions (line 42 on 1040). You can subtract $4050 (2016; may differ in future) per dependent in computing your taxable income. This will translate into a reduction in tax of $1000-1300 for most people.
* Child tax credit (line 52). Each child reduces your tax amount by $1000.
* Child care credit (line 49). You can get a credit (reduction in tax amount) for up to $3000 of child care expenses per child, but it's scaled down by income; at moderately high income it bottoms out at only 20% of that ($600 per child), so like half a month of actual daycare costs.
* Health insurance subsidy. If you purchase your own health insurance on the ACA marketplace, your eligibility for and amount of subsidy are based on your income relative to the federal poverty line *for your household size*. For a certain middle-class range of incomes (probably around $40k-60k/yr but do the math) you could easily go from paying hundreds or over a thousand a month out-of-pocket for an insurance premium to paying nothing by adding a child. At somewhat lower incomes (around $27k) you could even become eligible for Medicaid (if your state accepted federal funding to expand Medicaid).

(Disclaimer: none of this is professional tax advice, and there are some limitations depending on your type and amount of income. Also I'm told that the new tax law has eliminated exemptions but increased the child tax credit, so OP may see less benefits than what I described based on old law under the new law.)

From personal experience: yes, daycare is expensive. If one parent has a low-income job, it's a lot more expensive than them just staying home and forgoing that income. However you also have to consider things like how that influences your quality of life, how you'll make opportunities for your children to develop early social skills, and if you opt to do it in the conventionally patriarchal framework, what lessons that teaches your child about the relative worth of men's and women's labor. As such I believe it's a positive thing despite being expensive.