Data from last year showed that approximately 20 million Americans are self-employed. While self-employment offers up real economic opportunity, the financial system hasn’t yet caught up with it. Whether you want to buy a car or rent an apartment, lenders seek traditional proof of income documents.
How do you show proof of income for self employment? It’s not as difficult as you might think. Keep reading to learn more about self-employed entrepreneurs showing proof of income.
1. Show Your 1099
If you are employed in a full-time, permanent position, all you need to do is show your real check stubs as proof of employment. But what happens if you don’t have a paystub?
The 1099 tax form is the best proof of income for self-employed people. It’s a legal document, and you agree upon signing that all information contained within is accurate – or you face a penalty under the law.
Because you’re self-employed, those asking for proof of income likely want to see multiple years of tax documents. Be prepared to show three to five 1099 forms.
Have you lost your tax form? Don’t worry. You can request a copy from the IRS.
2. Provide Your Bank Statements
Bank statements are another form of proof of income, but they serve as supplements to your tax forms.
Like your 1099, a bank statement won’t lie, as your bank produces it. Your reports demonstrate a stable flow of income in the form of your deposit history. Often, lenders will want to see several months or even years worth of bank statements.
Thankfully, you can download them from your bank if you don’t have them handy.
If you’re self-employed, it’s worth opening a business banking account and using that to receive income. Separating business and personal expenses make tax time more manageable, and it gives you something to show the bank without revealing your purchases.
3. Copies of Invoices and Earnings
The final way self-employed people can provide proof of income is through your business paperwork. A combination of your business plan, invoices, and balance sheets, can serve to bolster your other documents, like bank statements or tax returns.
You typically only need to provide these documents when you want to make a big purchase, like applying for a mortgage or a business loan.
There is one additional piece of paperwork that falls under this category. If you set up a limited company and you pay yourself a salary through the company, then you can skip the above and just issue yourself paystubs to prove your income.
How Do You Show Proof of Income for Self Employment?
As more and more people turn to self-employment, the credit and financial system will need to change to meet their needs. Until then, you’ll need to do a bit more leg work to apply for loans and meet credit requirements.
How do you show proof of income for self employment? The good news is that your tax returns and bank statements do most of the heavy lifting for you. If you need extra documents, the underlying documentation used for your taxes (balance sheets, invoices, etc.) will help you out.
Are you looking for more finance tips? Visit the Business and Finance archives for more helpful hints whether you are self-employed or gainfully employed.