Self-Employed? Here's How To Show Proof Of Income

By James Wilson

Jun. 08, 2017

269331

Being self-employed means employment on your terms. You enjoy a flexible schedule and work that you like doing. Self-employment doesn't mean you can forget about your credit responsibilities, however. Showing proof of income is often required for loans, taxation laws, and insurance purposes. This may seem daunting for self-employed individuals. Yet, proving your income is actually easier than you think. Check out these key steps to doing so, and get started today!

How to Show Proof of Income

Locate all of your annual tax returns

Tax returns are your first go-to when it comes to income proof. If you are a freelancer or business owner, you will receive the appropriate tax returns for a given year that state your annual income. Keep in mind, however, that tax returns can have a downside for self-employed individuals. Remember that many people sometimes don't record "off-the-books" income or smaller project fees. This means your tax return may not indicate a full representation of your entire income for a given year.

Bank statements indicate personal cash flow

Bank statements are a great resource when it comes to tracking and proving income when you are self-employed. It can be easy, however, to misidentify certain expenses or deposits. Setting up a separate account for business purposes alone is a perfect way to disassociate your personal and professional expenses and deposits. It is a excellent approach to prove your income and business expenses down the line.

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Make use of online accounting services that track payments and expenditures

If you conduct a lot of your business online, utilize a service (such as PayPal) that automatically tracks expenditures and deposits. Some of these services offer additional accounting assistance. You can also generate your own personal paystubs with paystub creator to keep track of income, no matter your type of self-employment. The more you can stay organized and on top of your own cash flow, the more solid your income proof.

Tracking expense from a computer to agency hosting fees to paper or pens can help you save money.

Maintain profit and loss statements

If you are a business owner in particular, it's important to keep documentation of profit and loss. Nevertheless, any self-employed individual can create a profit and loss statement. Some credit companies can assist you with creating one, or you can use a profit and loss statement template. Your statement should include all income, expenditures, and business-related deposits. It should also have relevant dates that correspond with your bank or online banking statements.

Proving Your Income

Self-employment can be liberating. It can also seem frustrating when it comes to proving your income for insurance or other purposes. Luckily, showing proof of income as a self-employed individual is a lot easier than most realize. The most important thing to keep in mind when proving your income is to keep constant documentation. Keeping your tax returns, profit and loss statements, and bank statements all in the same place will make proving your income easier down the road.
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If you're ready to form a business but feel intimidated by the red tape, there are business formation companies (for example, ZenBusiness) that can help you set up an LLC or corporation, provide registered agent services, help with accounting tasks, and more.

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Frequently Asked Questions

Yes, you can use bank statements as proof of income, particularly if they highlight regular deposits from your self-employed work. Be prepared to provide several months' worth of statements to establish consistency in your income.

Yes, paid invoices can be used as proof of income, especially if they are accompanied by corresponding bank statements that show the payments being deposited. This demonstrates a history of consistent income from your self-employed work.

You can create a profit and loss statement using accounting software, a spreadsheet program, or by working with an accountant. The statement should include your business's revenue, expenses, and net profit.

Your annual tax return, specifically the Schedule C form (Profit or Loss from Business), can be used to show your net income. Additionally, your 1040 form can be used to provide a comprehensive view of your income and deductions.

It's best to provide at least two different types of documents to establish a thorough and accurate representation of your income. The specific requirements may vary depending on the institution or individual requesting the proof of income.

Documents such as tax returns, bank statements, profit and loss statements, and paid invoices can be used to verify a self-employed person's income.

In cases of irregular or inconsistent income, providing a more extended history of bank statements, tax returns, and profit and loss statements can help paint a clearer picture of your overall financial situation. Be prepared to explain any gaps or fluctuations in your earnings.

A profit and loss statement, also known as an income statement, is a financial document that summarizes your revenues, costs, and expenses over a specific period. It can be used to demonstrate your business's profitability and financial health.

Proof of income is documentation that verifies your earnings and showcases your financial stability. It is often required when applying for loans, rental properties, or various financial transactions.

As self-employed individuals do not have a traditional employer to verify their earnings, showing proof of income helps them establish credibility and stability when applying for loans, leases, or other financial agreements.

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