Archive for the ‘Saving news’ Category

Young, Self Employed, No Accounts And No Savings. How

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Posted 10 Feb 2011 — by Admin
Category Saving news

Young, Self Employed, No Accounts And No Savings. How Did I Get A Mortgage?

I was having considerable problems getting a mortgage to buy my first home about four years ago. If I was to believe everything I had heard, I was the ideal candidate for a mortgage – young, a first-time buyer and with an annual income of about 30k. Easy!

No, not easy, actually. Being young with a leaning towards enjoying myself, I had no savings – nothing to use as a deposit. But what about these 100% mortgages I had been hearing about? Surely I qualified? Oh, there was something else – I was also self employed with no accounts.

Self employed with no accounts and no savings.

Could I get a mortgage? It was virtually impossible. Not a single High Street lender would give me a mortgage. Even my bank who have had my services for ten years turned me down; even though my bank knew exactly how much I earned each year and how much I spent each week; even though my bank knew that making the monthly payments on a repayment mortgage would not be an big problem for me.

Then I heard about Self Certification Mortgages.

What is a Self Certification Mortgage? It’s essentially a mortgage whereby you decide whether or not you are capable of making the repayments. And that is when the penny dropped, because you see the entire process of applying for a mortgage is premised upon an institution (such as your bank) deciding whether or not you are able to make the monthly repayments.

And what is the formula for working this out? Well, if you are employed it is your salary – a bank will lend you, say, 3 or 4 times your annual salary. Normally they will ask you for a small deposit, say 5%, to demonstrate that your intentions are serious.

Obviously, if you are self employed, and particularly with no accounts, you often do not have an annual salary and you are unable to demonstrate regular monthly income. Many self employed people – notably me – live hand-to-mouth, regularly waiting for reluctant clients to settle outstanding invoices. So how can your ability to repay a mortgage be judged? I discovered that self certification was the answer – i.e. YOU. You make a judgement as to whether or not you are borrowing too much money and whether or not you will be able to afford the monthly repayments. After all, if you are bright enough to run your own business, manage your own tax affairs, handle purchasing and invoicing, surely you are bright enough to work out whether you can repay your mortgage!

Think about it – conventional, salary-based mortgages are judged on the basis of what a person has earned in the past, but a person could be made unemployed within hours of securing a mortgage. On the other hand, Self Certification puts the onus on you predicting what you will earn in the future. Sure, you could go out of business, but a salaried person could also lose their job.

So I thought, well this is good, but I bet that a Self Certification Mortgage is the stuff of loan sharks, with huge interest rates, crushing monthly repayments and Guantanemo-style penalties.

But there was something else I discovered about mortgages. Although the High Street is swamped by lenders, there are only actually a very small number of ‘actual’ lenders: the majority are intermediaries acting on their behalf, because the number of mortgage applications is so great that intermediaries are required to perform the process of judging each applicant and assessing risk.

So I discovered that whereas a High Street lender would turn me down, a smaller lender might accept me. But get this: the mortgage that I actually received from the small lender at the end of the day was exactly the same as the mortgage which had been refused me by the High Street lender! Only the forumla for judging my ability to repay the mortgage was different, not the mortgage itself!

So what’s the catch with Self Cerftification? There is always a catch in my experience, and in this instance it was a very big catch. Whereas a regular mortgage requires the borrower to contribute a deposit of, say, 5%, my Self Certification Mortgage required a deposit of 15%. Fifteen percent!! Of course I can see why they ask for this, why if you are not being judged using the conventional formula you are expected to show some serious committment. But I didn’t have any savings. I was young and self employed for crying out loud.

So what did I do? Okay, I would not recommend this to everybody, but I was desperate for my own home and I knew that I could afford the repayments. I took out a Personal Loan shortly before my mortgage application and, supplemented with a timely invoice payment, I was able to pay the deposit and afford the key refurbishment costs on the property (roof, re-wiring, plumbing etc).

On the High Street this would be called a Home Improvement Loan and acquired AFTER you have obtained a mortgage and purchased the property. I simply borrowed a little more in the form of a Personal Loan before I had acquired a mortgage. I was fortunate in that I could afford to carry the costs of these repayments for the forseeable future and I had bought on a rising market – the value of my property was already more than the mortgage and personal loan combined before I had even finished the refurbishment (ie. 4 months after buying the property). I would not recommend this to everyone, and you have to be very, very clear about how much you are borrowing and what the total repayments will be.

However, getting on the property ladder and having my own home was the most important thing to me, and it just goes to show that if you look beyond the High Street you can actually find the same or similar financial products but with less of the hassle. The High Street had always made me feel inadequate, a financial failure

You might be interested to know that, because I was still looking for the catch in my Self Certification Mortgage, I went to a respected, independent financial advisor recently (on the High Street as it happens) and asked if I should change my mortgage to something better. His advice was that I had got a very good mortgage deal and that I should stick with it for the forseeable future. So I have.

Richard

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Use Child Tax Credit for Tax Savings

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Posted 03 Feb 2011 — by Admin
Category Saving news

Now, heres a real tax savings to the individual taxpayer with dependents. The child tax credit is a direct federal income tax credit based on the number of dependent children in your family. This federal tax credit is available to provide credit to taxpayers with income below certain established levels. Started in 2003 and going to 2010, the maximum credit per child is 1000 and is first applied to reduce or eliminate the taxpayers federal tax liability. In 2011, the Sunset Provision will decrease the tax credit unless the credit is extended or made permanent.

How does this federal tax credit work and who qualifies for this credit? Well, lets start with the last question first. Every family with children qualifies, however the federal tax credit phases out when income is above 110,000 for married filing jointly, 75,000 for single, head of household, or widow, and 55,000 for married filing separately. In addition, the child tax credit might be limited by the amount of income tax you owe as well as any alternative minimum tax you might owe. But like everything else in this world, there are exceptions. If the amount of your child tax credit is greater than the amount of federal income tax you owe, you may be able to claim a portion or all of the difference as an “additional” Child Tax Credit.

First exception: if your earned income exceeds 10,750, you may be able to claim up to 15 percent of that amount. Second exception: if you have three or more qualifying dependent children in your family, you may claim up to the amount of Social Security taxes you paid during the year, minus any Earned Income Tax Credit you received. If you qualify under both these exceptions, you receive the greater of the two amounts, up to the difference between your federal tax liability and your regular Child Tax Credit. You may want to seek a tax professional for help with this credit.

Now, to answer the how does it work aspect; the best approach might be to simply break down the requirements, and explain each fully. The child tax credit is the responsibility of the Internal Revenue Service (IRS), and the credit issuance is determined through the federal tax returns the individual taxpayer completes each year. Taxpayers must complete either the 1040 or the 1040A and the IRS form 8812. The IRS will then determine eligibility, and process accordingly; the requirements and limits change each year, so the individuals eligibility may change each year.

In order to qualify, a family must have earned at least 10,500 in income, and that figure will rise each year, according to inflation. There must also be at least one qualifying child. In order to be classified as a qualifying child, the child must meet the following requirements: under age 17 of the tax year, claimed on your tax return as a dependent, must pass the relationship test (son, daughter, stepchild, grandchild, brother, sister, foster child, adopted child, etc.), be a US citizen or a resident alien, and have a social security number.

During its original year of inception, many families with qualifying children were mailed an advance federal income tax credit of either 300 or 400 pounds; but they were also told this would reduce their end-of-year tax credit, pound for pound.
The method used for determining the tax credit is fairly simple, and is not difficult to calculate; however, any individual taxpayer with uncertainty should seek the advice and assistance of a tax professional when preparing their federal tax return.

The credits, as stated earlier are claimed when you complete a 1040 or 1040A and file your returns with the Internal Revenue Service. Although many individual taxpayers pay for a professional to complete their federal tax returns each year, there are qualified preparers that are available free of charge each year, through the IRS; either way, make sure that you communicate your qualifications for the child tax credit, and check your tax return to see that the credit was applied. You do not want to let this tax credit slip by.

The child tax credit, along with the Hope and Lifetime Learning credits are a direct means to affect the individual taxpayers tax liability and offer some level of tax relief. This is meant to help parents with the costs associated in raising children, and educating them. Most often, the child tax credit is a way to alleviate the existing federal tax liability for middle-income taxpayers. For the extremely low income families, there is often no income tax due, so there is no allowable tax credit. Although it does not help the poverty level families as a form of federal income tax refund or tax-free income, it does help to alleviate any federal tax liability. The Earned Income Credit is used by many poverty level or low-income families as a supplement to their earned income.

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Use Child Tax Credit for Tax Savings

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Posted 27 Jan 2011 — by Admin
Category Saving news

Now, heres a real tax savings to the individual taxpayer with dependents. The child tax credit is a direct federal income tax credit based on the number of dependent children in your family. This federal tax credit is available to provide credit to taxpayers with income below certain established levels. Started in 2003 and going to 2010, the maximum credit per child is 1000 and is first applied to reduce or eliminate the taxpayers federal tax liability. In 2011, the Sunset Provision will decrease the tax credit unless the credit is extended or made permanent.

How does this federal tax credit work and who qualifies for this credit? Well, lets start with the last question first. Every family with children qualifies, however the federal tax credit phases out when income is above 110,000 for married filing jointly, 75,000 for single, head of household, or widow, and 55,000 for married filing separately. In addition, the child tax credit might be limited by the amount of income tax you owe as well as any alternative minimum tax you might owe. But like everything else in this world, there are exceptions. If the amount of your child tax credit is greater than the amount of federal income tax you owe, you may be able to claim a portion or all of the difference as an “additional” Child Tax Credit.

First exception: if your earned income exceeds 10,750, you may be able to claim up to 15 percent of that amount. Second exception: if you have three or more qualifying dependent children in your family, you may claim up to the amount of Social Security taxes you paid during the year, minus any Earned Income Tax Credit you received. If you qualify under both these exceptions, you receive the greater of the two amounts, up to the difference between your federal tax liability and your regular Child Tax Credit. You may want to seek a tax professional for help with this credit.

Now, to answer the how does it work aspect; the best approach might be to simply break down the requirements, and explain each fully. The child tax credit is the responsibility of the Internal Revenue Service (IRS), and the credit issuance is determined through the federal tax returns the individual taxpayer completes each year. Taxpayers must complete either the 1040 or the 1040A and the IRS form 8812. The IRS will then determine eligibility, and process accordingly; the requirements and limits change each year, so the individuals eligibility may change each year.

In order to qualify, a family must have earned at least 10,500 in income, and that figure will rise each year, according to inflation. There must also be at least one qualifying child. In order to be classified as a qualifying child, the child must meet the following requirements: under age 17 of the tax year, claimed on your tax return as a dependent, must pass the relationship test (son, daughter, stepchild, grandchild, brother, sister, foster child, adopted child, etc.), be a US citizen or a resident alien, and have a social security number.

During its original year of inception, many families with qualifying children were mailed an advance federal income tax credit of either 300 or 400 pounds; but they were also told this would reduce their end-of-year tax credit, pound for pound.
The method used for determining the tax credit is fairly simple, and is not difficult to calculate; however, any individual taxpayer with uncertainty should seek the advice and assistance of a tax professional when preparing their federal tax return.

The credits, as stated earlier are claimed when you complete a 1040 or 1040A and file your returns with the Internal Revenue Service. Although many individual taxpayers pay for a professional to complete their federal tax returns each year, there are qualified preparers that are available free of charge each year, through the IRS; either way, make sure that you communicate your qualifications for the child tax credit, and check your tax return to see that the credit was applied. You do not want to let this tax credit slip by.

The child tax credit, along with the Hope and Lifetime Learning credits are a direct means to affect the individual taxpayers tax liability and offer some level of tax relief. This is meant to help parents with the costs associated in raising children, and educating them. Most often, the child tax credit is a way to alleviate the existing federal tax liability for middle-income taxpayers. For the extremely low income families, there is often no income tax due, so there is no allowable tax credit. Although it does not help the poverty level families as a form of federal income tax refund or tax-free income, it does help to alleviate any federal tax liability. The Earned Income Credit is used by many poverty level or low-income families as a supplement to their earned income.

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Tips For Saving Money on Your Home Loan

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Posted 06 Jan 2011 — by Admin
Category Saving news

The application process for a home loan can be complex and hectic. When borrowers get caught up in the moment, they often forget to angle for better deals.

Tips For Saving Money on Your Home Loan

The best way to save money on your home loan is to get the interest rate reduced. Cutting the interest rate by even a quarter point can save tens of thousands of pounds in interest payments over the life of the loan. Unfortunately, lenders are very resistant to cutting interest rates. The only bullet you really have in your arsenal is to bluntly state that you will take your business elsewhere if they do not cut the rates. Since the real estate market is cooling off, lenders are becoming more receptive to these suggestions since they no longer have loans just pouring through the doors. If the market heats back up, you can forget about the viability of this position.

If you are going to try to get the interest rate knocked down, information is your friend. You will have far more success if you can show the lender a better interest rate being offered by another lender. Look for marketing pieces by other lenders on the same or similar loans.

There is really only one definite way to cut down the interest rate on the loan. It has to do with points. If you have a pool of cash at the time of application, you can attempt to buy down the interest rate by paying more points at the outset. While lenders are receptive to this approach, most people do not have large piles of cash lying around. Scraping enough together for the down payment is usually a sufficient problem. Still, there are other ways to save money on your mortgage.

If a lender is charging you points on your home loan, they are highly negotiable. Lenders view points in a more flexible manner. The higher the value of the home you purchase, the more a reduction in points can save you money. If nothing else, you have nothing to lose by asking for a quarter or half point reduction.

Cutting the best deal possible at the time you apply for a mortgage is critical. Even small concessions by the lender can save you tens of thousands of pounds over the life of the loan.

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The Savings and Loans Associations Bailout

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Posted 30 Dec 2010 — by Admin
Category Saving news

Asset bubbles – in the stock exchange, in the real estate or the commodity markets – invariably burst and often lead to banking crises. One such calamity struck the USA in 1986-1989. It is instructive to study the decisive reaction of the administration and Congress alike. They tackled both the ensuing liquidity crunch and the structural flaws exposed by the crisis with tenacity and skill. Compare this to the lackluster and hesitant tentativeness of the current lot. True, the crisis – the result of a speculative bubble – concerned the banking and real estate markets rather than the capital markets. But the similarities are there.

The savings and loans association, or the thrift, was a strange banking hybrid, very much akin to the building society in Britain. It was allowed to take in deposits but was really merely a mortgage bank. The Depository Institutions Deregulation and Monetary Control Act of 1980 forced S&L’s to achieve interest parity with commercial banks, thus eliminating the interest ceiling on deposits which they enjoyed hitherto.

But it still allowed them only very limited entry into commercial and consumer lending and trust services. Thus, these institutions were heavily exposed to the vicissitudes of the residential real estate markets in their respective regions. Every normal cyclical slump in property values or regional economic shock – e.g., a plunge in commodity prices – affected them disproportionately.

Interest rate volatility created a mismatch between the assets of these associations and their liabilities. The negative spread between their cost of funds and the yield of their assets – eroded their operating margins. The 1982 Garn-St. Germain Depository Institutions Act encouraged thrifts to convert from mutual – i.e., depositor-owned – associations to stock companies, allowing them to tap the capital markets in order to enhance their faltering net worth.

But this was too little and too late. The S&L’s were rendered unable to further support the price of real estate by rolling over old credits, refinancing residential equity, and underwriting development projects. Endemic corruption and mismanagement exacerbated the ruin. The bubble burst.

Hundreds of thousands of depositors scrambled to withdraw their funds and hundreds of savings and loans association (out of a total of more than 3,000) became insolvent instantly, unable to pay their depositors. They were besieged by angry – at times, violent – clients who lost their life savings.

The illiquidity spread like fire. As institutions closed their gates, one by one, they left in their wake major financial upheavals, wrecked businesses and homeowners, and devastated communities. At one point, the contagion threatened the stability of the entire banking system.

The Federal Savings and Loans Insurance Corporation (FSLIC) – which insured the deposits in the savings and loans associations – was no longer able to meet the claims and, effectively, went bankrupt. Though the obligations of the FSLIC were never guaranteed by the Treasury, it was widely perceived to be an arm of the federal government. The public was shocked. The crisis acquired a political dimension.

A hasty 300 billion bailout package was arranged to inject liquidity into the shriveling system through a special agency, the FHFB. The supervision of the banks was subtracted from the Federal Reserve. The role of the the Federal Deposit Insurance Corporation (FDIC) was greatly expanded.

Prior to 1989, savings and loans were insured by the now-defunct FSLIC. The FDIC insured only banks. Congress had to eliminate FSLIC and place the insurance of thrifts under FDIC. The FDIC kept the Bank Insurance Fund (BIF) separate from the Savings Associations Insurance Fund (SAIF), to confine the ripple effect of the meltdown.

The FDIC is designed to be independent. Its money comes from premiums and earnings of the two insurance funds, not from Congressional appropriations. Its board of directors has full authority to run the agency. The board obeys the law, not political masters. The FDIC has a preemptive role. It regulates banks and savings and loans with the aim of avoiding insurance claims by depositors.

When an institution becomes unsound, the FDIC can either shore it up with loans or take it over. If it does the latter, it can run it and then sell it as a going concern, or close it, pay off the depositors and try to collect the loans. At times, the FDIC ends up owning collateral and trying to sell it.

Another outcome of the scandal was the Resolution Trust Corporation (RTC). Many savings and loans were treated as “special risk” and placed under the jurisdiction of the RTC until August 1992. The RTC operated and sold these institutions – or paid off the depositors and closed them. A new government corporation (Resolution Fund Corporation, RefCorp) issued federally guaranteed bailout bonds whose proceeds were used to finance the RTC until 1996.

The Office of Thrift Supervision (OTS) was also established in 1989 to replace the dismantled Federal Home Loan Board (FHLB) in supervising savings and loans. OTS is a unit within the Treasury Department, but law and custom make it practically an independent agency.

The Federal Housing Finance Board (FHFB) regulates the savings establishments for liquidity. It provides lines of credit from twelve regional Federal Home Loan Banks (FHLB). Those banks and the thrifts make up the Federal Home Loan Bank System (FHLBS). FHFB gets its funds from the System and is independent of supervision by the executive branch.

Thus a clear, streamlined, and powerful regulatory mechanism was put in place. Banks and savings and loans abused the confusing overlaps in authority and regulation among numerous government agencies. Not one regulator possessed a full and truthful picture. Following the reforms, it all became clearer: insurance was the FDIC’s job, the OTS provided supervision, and liquidity was monitored and imparted by the FHLB.

Healthy thrifts were coaxed and cajoled to purchase less sturdy ones. This weakened their balance sheets considerably and the government reneged on its promises to allow them to amortize the goodwill element of the purchase over 40 years. Still, there were 2,898 thrifts in 1989. Six years later, their number shrank to 1,612 and it stands now at less than 1,000. The consolidated institutions are bigger, stronger, and better capitalized.

Later on, Congress demanded that thrifts obtain a bank charter by 1998. This was not too onerous for most of them. At the height of the crisis the ratio of their combined equity to their combined assets was less than 1%. But in 1994 it reached almost 10% and remained there ever since.

This remarkable turnaround was the result of serendipity as much as careful planning. Interest rate spreads became highly positive. In a classic arbitrage, savings and loans paid low interest on deposits and invested the money in high yielding government and corporate bonds. The prolonged equity bull market allowed thrifts to float new stock at exorbitant prices.

As the juridical relics of the Great Depression – chiefly amongst them, the Glass-Steagall Act – were repealed, banks were liberated to enter new markets, offer new financial instruments, and spread throughout the USA. Product and geographical diversification led to enhanced financial health.

But the very fact that S&L’s were poised to exploit these opportunities is a tribute to politicians and regulators alike – though except for setting the general tone of urgency and resolution, the relative absence of political intervention in the handling of the crisis is notable. It was managed by the autonomous, able, utterly professional, largely a-political Federal Reserve. The political class provided the professionals with the tools they needed to do the job. This mode of collaboration may well be the most important lesson of this crisis.

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The Importance Of Saving Money For The Future

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Posted 23 Dec 2010 — by Admin
Category Saving news

Money in my opinion is not the most important thing in life, but it is nice to know that you have a certain amount of money, saved or invested, which you can use if needed. I actually think that health and happiness are the two most important things in life. Having this pool of money helps to keep me healthy and happy, as it means that I do not have to stress as much about the future.

I only really realised the importance of investing and saving money, when I was twenty-three years of age. Up until this age, I would always spend all of my wages and did not care if I was overdrawn in the bank. I used to think that I could die tomorrow, so why bother about saving money which I might not ever use. This is a bit stupid, I know.

At the age of twenty-three, on one particular day, I was having a conversation with a friend called Tim. He basically earned the same amount of money as I did and lived a similar lifestyle. Tim told me that he was thinking of buying a flat and that he was going to cash in his investment bond to help fund the move. I was very shocked that he even had a bond and asked him how long he had had the bond, and how he had managed to get the money to put into it. I expected Tim to tell me that his parents had given him the money, but they hadn’t, he had saved up the money himself.

Tim told me that he tries to save as much money as he can per month and normally manages to save at least 100. When he has a 1000 saved in the bank, he then invests the money into a bond.

I was very impressed with Tim and I have to admit a little bit jealous of his money. I then thought to myself, if Tim can save, then so can I. I set myself a goal of saving up a 1000 and planned to do this within ten months. I had to be less wreckless with my money and it would be a good test for me.

It did not prove to be that difficult and it was a good feeling seeing a healthy bank balance for once. After only eight months I had saved my target of 1000. Instead of putting it into a bond, I decided to take an even bigger risk and to buy some shares. I am happy to say that two years later the share price of the company I had chosen to invest in, had risen by sixty percent. This I have to admit was pure luck as I had simply guessed at who to invest in. The company I chosen had had a dismal few years and its share price was at its lowest ever level. I had heard that the company had recently had some major changes at the top and I decided to gamble just on these few facts.

That was my first experience of investing and it gave the taste for it. I have regularly been buying and selling shares as well as investing in unit trusts for around ten years now. It has also become like a kind of sport or hobby for me, as I am trying to always pick a winner. I have won some and lost some but have had a huge amount of fun along the way.

I now have a certain amount invested in different ways and when for example I have a big car repair bill, I have no need to panic as all I need to do, is to cash in some of the units of my unit trust. That is what I like about a unit trust, unlike with an endowment policy where you need to wait until the end of the term to have access to your money, with a unit trust you can take out all or just some of your units at anytime that you want.

Before I started to save up money, I would often get quite stressed about the future. How would I be able to buy a house? How will I be able to buy a decent car? These are just two of many questions I would ask myself. I would try to ignore the questions by saying to myself that at that stage of my life, I should be earning more money.

I am now very happy that I had that conversation with Tim. Investing money in the way that I do has helped me to get onto the property ladder and also helps to fund my yearly holiday abroad for my family. It also gives me a peace of mind for the future and helps to to sleep easier at night.

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The Benefits Of Saving Money On A Regular Basis

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Posted 16 Dec 2010 — by Admin
Category Saving news

Over the past few years, I have been saving money each month, not for any particular reason like for example to buy a house, but just in case something big went wrong. It is in a way a form of self-insurance. In this article I write about the benefits of doing this and about my own personal experiences, i.e how hard or easy it has been saving in this way.

Maybe I am being paranoid but I always seemed to have far less money than what my friends had. Four years ago a group of us went to Spain for a two-week holiday. I will never forget the moment when one of my friends asked how much money each of us were taking on the holiday. We all answered one by one and to my horror not only did I have the least amount but I had around two hundred pounds less than the next lowest person. It was not because I was being tight, it was because I did not have anymore. It had actually been a real struggle to save up this much.

When I arrived back from this holiday I decided that I needed to change my attitude on financial matters. I read a few books and spoke to a number of people about the best way for me to move forward. I did not want to have to struggle next year if there is to be another holiday for example.

I believed the answer was to start saving an amount every month which would leave my account via direct debit. I was the type of person who would basically spend whatever I had or earned. If it was in the bank therefore I would spend it. It was to leave my account via direct debit I would have no way of course to spend it.

I set up one of these savings policies and started it a modest 30 a month. I am very pleased to say that it did not exactly have a major negative impact on my social life. The policy itself was in some way linked to the stock market and this itself was quite exciting, sad I know. After a year I received a statement through the post and I was quite happy to see that I was actually worth something for a change. I then decided to increase the amount that I was going to save to 50 a month.

In life you never really know when something is going to go wrong, for example your car breaking down, the washing machine packing up or the need for some improvements to your house. By saving in the way that I know do makes these issues far less stressful to deal with as I have the funds readily available to remedy the situation.

At times of course I have enough money saved to splash a bit on say a holiday or a new car.

I would strongly advise other people to commence saving on a regular basis as it has certainly given me a piece of mind.

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Tax Savings Tips For Parents

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Posted 09 Dec 2010 — by Admin
Category Saving news

Ask any new parent, and they will tell you that the costs associated with a new baby are many, everything from bottles to diapers to cribs, strollers, and high chairs, and all of this before the child even learns to walk and talk and beg you for a pair of 500 designer jeans. Parenting is one of the most rewarding, and important jobs that a person can have, in addition to being one of the most expensive. The good news is that there are two tax breaks offered by the federal government that the majority of parents can qualify for, which are the dependent exemption and the child tax credit.

The dependent exemption is a tax break that allows you to receive an additional tax deduction of as much as 3,000 each year until your child turns 19. This is addition to the standard tax exemption that the IRS allows per person to cover basic living expenses. Single people are allowed one exemption, while married couples have the option of taking two of these exemptions per year.

The amount that you will save with this exemption depends on your current tax bracket, and generally, the higher the tax bracket, the more money you will receive, unless your income is too high to claim an exemption, but again, most people will qualify. This dependent exemption is only phased out for married couples filing jointly with an adjusted gross income of more than 300,000. Limits for single parents exist as well, and it is important to research these limits, both for married and single parents, to be sure that your income does not exceed them. If you qualify for this exemption, you can simply fill out the required lines on your tax form, including an adoption taxpayer identification or social security number for each child.

The child tax credit is available for married couples filing jointly with a reported gross income of below 13,000, although again, it should be noted that income limits for both single and married parents are revised frequently. With this credit, it is possible to receive up to 1,000 per child.

Determining the amount of credit that an individual can claim requires the completion of the child tax credit worksheet, which can be downloaded from the IRS website. You will need to provide a social security or adoption taxpayer identification number for each child in order to qualify. As with all tax information you should always check with a professional because tax laws can change every year.

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