Proof of income is one of the things you need to get pre-approved for a mortgage. However, you may need to provide these documents for everything from personal loans to health insurance. You may think providing self-employed proof of income is next to impossible, but that’s far from the truth.
You can provide supporting income verification documents for any situation. It all comes down to learning what documents you can use to prove your income. Don’t know where to start?
Here Are 5 Tips To Show Proof Of Income When You Are Self-Employed.
1. Maintain Accurate Accounting Records
Self-employed individuals enjoy the freedom of being their own boss, but often forget they’re running a business.
Maintaining accurate accounting records is vital to prove your income when you’re self-employed. Make sure to keep a copy of all your receipts and record every transaction related to your work.
Consider using accounting software to record and maintain your financial records. Finding the right solution is as easy as searching online for “accounting software for self-employed people” or “accounting platform for contractors.”
2. Separate Your Business And Personal Accounts
When you are self-employed, you may think to deposit your income and buying anything you need for work using your personal account is the best approach. While it’s easier to use your personal accounts, it can limit your deductions and put you in a tough spot when it comes to proving your income.
You should consider opening an account for all work-related transactions. This practice will make it easier to use your bank statements to prove your income. You can just print your bank statements from your business and personal accounts to prove how much you earn.
3. Pay Yourself Using A W-2 And Pay Stubs
It may be easier to receive your income straight to your bank account and receiving a 1099 form from the employer. However, you should consider paying yourself using a W-2 and generating pay stubs instead.
When you generate these documents, you can provide them to your lender to prove your income. If you don’t know how to create pay stubs, you may consider a generator such as ThePayStubs.
4. Generate Financial Reports Regularly
You may think only companies need to worry about generating financial reports. Yet, creating reports such as balance sheets, expense reports, and revenue statements can help you prove your income from self-employment. Believe it or not, your lender may request these documents to verify your income.
5. Keep Copies Of Your Tax Returns And Other Documents
Every year, you’ll file your state and federal tax returns. You can use them to prove your income. The Internal Revenue Service recommends you keep copies of your tax returns for as much as 7 years. If you’re unsure, you should consider consulting an accountant to obtain insight into what documents you should keep as proof of income.
Can You Show Self Employed Proof of Income?
You can show self-employed proof of income, but only if you organize and gather the right documents. If you’re being paid in 1099s, you may consider creating a company and paying yourself using W-2s. The right approach and documentation will depend on your self-employment situation.
If you’re unsure about the best way to prove your income, you may consider consulting an accounting expert. An accountant can provide insight into how you can maintain accurate income records.
Did you find this article useful? Check out the rest of our blog for other interesting articles that will help you on your journey in starting your own business including 10 Insurance Tips When Starting a Business. We can help guide and assist you in finding the right self-employed or contractors liability insurance for your needs.