Being Self-Employed is a challenging task ain’t it? While you are Self-Employed showing a proof of your income can be alarming. As you won’t be making the exact amount of money from the same client source every month so it feels like it requires more preparation and more stable plan to showcase a proof of your income.
In this guide we will churn down all the important information about showing your income as a Self-employed including what it is, why do you need it, as well as the documents required.
What do you Mean by Proof of Income?
Proof of income means a documentation that shows how much you have earned a period of time, say in a year. The format of the document depends on who is requesting for the document as some of the documents are stated to be sincere and accurate than the others.
Why do you Need a Proof of Income?
As life and work duties takes a toll on your mind it becomes necessary to demonstrate a proof of your income. Many moments from these are noteworthy and become a compelling milestone and give new ray of hope to you like buyin your own car.
A list of reasons for the need of the Proof of Income:
- Filing Tax
- Purchasing Health Insurance
- Sublet of a car or a house
- Purchasing Credti Card
- Financing a Vehicle
- Mortgage Appliance
- Other Personal Loans
Among the above listed reasons (except filing tax) some or the other involves lending you money for a limited period of time. This desire trust will make your image on a good path in order to fulfil your payments obligations.
May it be bank, credit card companies or insurance firm you will have the dignity towards whatever you are commiting to wheter it is becoming a consumer or becoming some other type of borrower.
How do you Provide a Proof of Your Income?
In case of employees a proof of income is a must and straight-forward. It’s a consolidation of W-2 form which is provided by your employer and is mailed in your latest bank statements. Generally, self-employed person don’t receive a W-2 form they turn their faces towards other documentation.
Ways to Prove Your Self-Employed Income:
This is the kind of document that is e-mailed you electronically or sent you a general e-mail from anybody who has paid you more than $600 in a year. The payer is solely responsible for filing it out and sending it to the IRS, as well as send you a copy of it for reference use when you file your own tax return.
Annual Tax Return
This is Form 1040. This is the most accurate and genuine kind of way to showcase your earning for the past year as it is a legal document which is widely recognized by the IRS.
If you are self-employed, your client will send you a 1099 form for payments that are over $600 so when you receive a 1099 form it’s not necessary that it will contain your total earning for a particular year.
But, remember that you need to report all your income in your tax filing so make sure to include a supplementary document for income that aren’t approved in terms and conditions of 1099 form.
Profit & Loss Statement
This is an elegant name for a document which showcases absolute revenue, cost, and profit that is made from your work. It’s advisable to track your income and expenses as it helps in making better decisions and provides you a space to create a plan for your business growth.
Reporting a self-employment income which does not correlate with the 1099 form? That’s where bank statements comes into play. If you use a single bank account for both business and personal use then you must clearly mention the business-related payments as well as the expenses to argue what is signigficant to your income.
Self-Employed Pay Stubs
You can create your own pay stub even you are a self-employed for record-keeping purposes and also to showcase a proof of your income.
To get it into the columns of legality a self-employed person must insert the following:
- Gross Pay: Total sum of money received for your services.
- Withdrawals: Medicare tax, Social Security tax, Local taxes all comes under this section. These are not automatically taken out form your paycheck, you need to check and calculate your taxes while you develop your paycheck stub.
- Net Pay: The closing amount you received after the deduction.
As long as you work as self-employed, the longer your providing a proof of your income becomes a priority. Don’t panic on it, as time progresses you will get your hands on the right documents. The thing of utmost importance is to stay consistent and organized keep a track of your business payments and expenses.
Can I use tax returns as proof of income if I'm self-employed?
Yes, tax returns are often considered a reliable source of income proof for self-employed individuals. They show your reported income and can be requested by lenders, landlords, or other entities requiring proof.
Are bank statements useful for demonstrating self-employment income?
Bank statements can be helpful in showing your income as a self-employed individual. They provide a record of your business transactions, deposits, and expenses, giving a clear picture of your financial activity.
What about profit and loss statements?
Profit and loss statements, also known as income statements, are excellent documents for showcasing your self-employment income. They summarize your revenue, expenses, and net income over a specific period, giving an accurate representation of your financial situation.
Can I provide client contracts or invoices as proof of income?
Client contracts and invoices can serve as supplementary evidence of income. They demonstrate your business engagements, the services rendered, and the payment terms. While they may not be sufficient as standalone proof, they can support other income documentation.