3 Ways to Show Proof of Income When You’re Self-Employed
There are more challenges to proving income when self-employed. This guide lists 3 ways to show proof of income when you’re self-employed.
About 44 million people are currently self employed. With more and more people making the jump each year, this number is only growing.
Working for yourself is a freeing experience where you only have to answer to yourself. You can work where, when, and how often you want. Your earning potential is limited only by your motivation and commitment.
But some drawbacks come with all of these benefits. It can be tough providing proof of income. Unfortunately, there are certain times when you’ll need to be able to definitively show how much money you make. This guide will help you with solutions for how you can show proof of employment.
1. Self-Employed Taxes
If you want to show a long term track record of income, then you should gather your annual tax returns. Because there are serious and significant consequences for lying on your taxes, these tend to be trusted documents for officially reporting your income.
The downside of using your tax returns is if you do work “off the books”. This extra income doesn’t get reported to the IRS and won’t show up on your returns. This means your reported income may look lower than your actual income.
You’ll also need to be self employed for several years. That way, you can show you can consistently support yourself and have income consistency.
2. Bank Statements
Most self employed people deposit the money they make into a bank account. This means you can use your bank account statements as proof of your incoming cash flow.
The downside is that it’s easy to misclassify money coming in and expenses. If you want to use your bank statements as proof, then it’s smart to have a separate bank account for your business. This will keep your personal and professional finances separate.
Having the two accounts separate will also keep the statements clean. This makes it easier for lenders and creditors to sort through your bank statements and get an accurate view of your current financial situation.
3. Online Accounting Systems
You should use an online accounting program to manage your self employment business. This will help you track your profits and expenses. Having a centralized place where you manage your self employment finances will make managing your business and doing your private contractor taxes easier.
As a part of your accounting program, you can create your own self-employed pay stub. You can then use these paystubs to document how much money you pay yourself.
Just be sure you learn the unique details of how to make pay stubs if self employed. You’ll want them to include all of the necessary information.
Create Your Proof of Income
As you can see, providing proof of income when you’re self employed isn’t complicated. In most situations, you should already be doing things to track your income. Then you can save yourself time and effort by pulling reports from your already established financial recording.
Browse our other business and financial articles for more helpful advice on how to manage your career and money.