Showing proof of income if your self employed can be challenging, but it is entirely possible with the right documentation. Whether you are applying for a car, home, or loan, we will show you what documentation you need to move your application forward.
Table of Contents
- Who are Self-Employed?
- Types of Proof of Income for Self Employed
- 25 Ways to Show Proof of Income
- Challenges with Self Employed Proof of Income
- How do you Calculate a Self Employed Income?
- Other Options
- Frequently Asked Questions about Proof of Income for Self Employed
Who are Self-Employed?
A self employed individual is someone who is not an employee of any company, but rather owns a business and employs their own working. A business can be run as a sole proprietorship, partnership or corporation. Most self employed individuals are filing taxes as a sole proprietor. In this case, they are required to report their annual revenue.
Types of Proof of Income for Self Employed
1. Paycheck Stubs
Your paycheck stubs are one of the most common ways to show income. Many homes, apartment, car dealerships, and loan officers are already familiar with pay stubs. Pay stubs show, at a glance, how much you make, how often you get paid, and how much your net pay is after taxes.
For these reasons, pay stubs can be excellent source at showing proof of income. Keep in mind, requestors will typically ask for your last 3 months of pay stubs.
If you don’t have pay stubs, you can get your pay stubs from your employer or previous employer. Simply contact the manager or HR department for a copy of your pay stubs.
There are two options to making pay stubs: manually or automated. The easiest is using the automated method of an online Pay Stub Generator.
W-2s or Wage and Tax Statements are used to report wages paid and taxes withheld for each employee for a given year. If you are hired to work for an agency or company that will employ you for the entire year, your employer will likely provide you with a form
W-2.Form W-2 is a proof of income document that shows the income and tax withholdings for your employment. W-2s are very helpful when showing proof of self employment income from a company or agency. Keep in mind that W-2s are yearly statements. Therefore, they will only show earnings for the previous year.
3. Forms 1099
Any form of income that is documented on a 1099 is also acceptable as proof of income. A 1099 form is filled with any person or entity that has paid you $600 or more per year in income.
Although some employers may give a 1099 after work is performed, most people will receive it after the end of the year. Therefore, if you are in need of 1099’s, contact your previous employer before the end of the year and request 1099’s.
4. Bank Statements
The most efficient way to show proof of income for self employed is by means of bank statements. Bank statements can be an effective way to show proof of income because they provide a clear picture of your finances.
In fact, bank statements are one of the most common form of proof; something that a majority of lenders use. Many lenders will ask for your last 3 months’ worth of bank statements on hand. As a self employed individual, it’s important that you follow the same accounting rules as every other business. This includes keeping good records.
5. Tax Returns
Another efficient way to show proof of income for self employed is by means of the tax return. A tax return is a legal document filed by an individual or company every year that tells the government how much you have earned.
Tax returns can be used as proof of income for the following reasons:
- It includes a detailed list of your income sources. You can send copy of your tax return to the lender as proof of income. You may also be allowed to sign and submit an original tax return to a lender as proof of income.
- It may also be used because it is reliable and is verified by the IRS. If an individual files a tax return, the lender can check its validity with the IRS. This can be useful in determining whether or not a person has filed for bankruptcy or had his identity stolen.
- The tax return includes your earnings as compared with others who are in the same tax bracket. This will allow you to explain why you are able to afford a particular loan or property.
You can send copy of your tax return to the lender as proof of income.
If you are looking for more ways to show proof of income, we have compiled an exhaustive list. Check out our article on 25 ways to show proof of income.
Challenges with Self Employed Proof of Income
Filing taxes as a self-employed individual is challenging enough, but when it comes time to apply for credit it can be difficult to show proof of income.
Leasing companies will often require documentation that shows a certain level of wages and expenses must be met in order to lease a vehicle. In this case hours worked may not be applicable, but they need to use their annual revenue generated by business instead.
Self-employed borrowers have higher income requirements than traditional loans and it can be difficult to demonstrate the bank that their income is sustainable.
Some lenders only offer loans to self employed borrowers with high incomes as opposed to non self employed with regular. But the majority of lenders will still allow self employed individuals to apply for credit.
Banks and Credit Unions are more likely to offer loans to self employed borrowers that have had loans before and performed on their income.
How do you Calculate a Self Employed Income?
It may be confusing to calculate your revenue as a self employed individual, but it is actually very simple. When your self employmed, it is vital that you accurately calculate how much business activity you had throughout the year.
To do this all you need to add up all of your revenue, including sales and receipts from any other sources! Simply take the total at the end of each month and divide it by 12 to come up with your annual revenue.
How much you earn per month will depend greatly on the number of hours you work each day and what kind of expenses you are incurring throughout your business venture. This is why it is crucial to keep track of those numbers as well!
If you have a hard time proving your income, consider other methods such as asking friends, relatives or neighbors to fill out an Affidavit of Support form.
An Affidavit, otherwise known as a sworn statement or promise of support. It is a contract signed by a Sponsor or Spouse to affirm the income, assets and financial status of an individual.
Frequently Asked Questions about Proof of Income for Self Employed
How to show proof of income for self employed?
Self-employed people can provide 1099s and bank statements showing amount deposited. Also, they can show an income tax return. In addition, if you are self-employed you can create pay stubs for yourself that correctly reflect how much you are getting paid. Make sure they all show the dates for the period you want to document.
How to show proof of income if self-employed?
If you are self-employed, you can use your bank statement as a proof of income. If you have been self-employed for a long time, you can show the income summary in the tax return. In addition, if you are self-employed you can create pay stubs for yourself that correctly reflect how much you are getting paid. Make sure they all show the dates for the period you want to document.
How to show proof of income when self-employed?
If you are self-employed, show your bank transactions. Conversely, you can show your prior year’s tax returns. In addition, if you are self-employed you can create pay stubs for yourself that correctly reflect how much you are getting paid. Make sure they all show the dates for the period you want to document.
If your self employed and need to show proof of income, get started with our pay stub generator.
Pay stubs are the most common ways to show income because pay stubs include tons of information. However, bank statements, w2s and 1099s are also important for the self employed as well.
It is always important to know what proof of income documents lenders will accept ahead of time. By knowing which documentation lenders require, lenders will process your application more efficiently. Contact your lender and ask them about which documents they prefer.