Self-Employed? How to Show Proof of Income
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.
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 pay stubs 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.
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 a profit and loss statement. Nonetheless, you can also generate one on your own. 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.
We can assist you in your documentation of your income and hours worked. Try our modern tool to have your self-generated pay stubs today!