Due to the recent shift in the global economic, many more people have become self-employed, and freelancing career has risen by more than 41%. Being self-employed is an interesting thing – it means employment on your terms. You are your own boss and you enjoy a flexible schedule and work.
However, one daunting question among self-employed people is how to manage their income, most importantly, how to show proof of income. Showing proof of income will be required for taxation law, loans, and insurance purposes.
But showing proof of income for self-employed is not something difficult – you only need to identify the right documents to use for the purpose. In this article, we will be showing you everything you need to know about proof of income documents for self-employed and how to get them. So, keep reading!
What Exactly Is Proof Of Income?
Proof of income is documentation that shows how much you earn or have earned over a given period of time – usually over a year. This document is often required for major purchases, buying or renting a home, obtaining loans, insurance purposes, and more.
Getting proof of income is a very simple thing if you are employed traditionally but being self-employed can make it a bit difficult. Most freelancers don’t know how to track their earnings and provide proof of income. So, let’s see some options for self-employed proof of income.
Types of Proof of Income for Self-Employed
#1: Annual tax returns
Your federal tax return is solid proof of how much you’ve made in the past year. It is a legal document that is officially recognized by the Internal Revenue Service showing your total income and expenses for that year.
However, you should also know that tax returns also do have its downside for self-employed individuals. Remember that most people sometimes forget to record “off-the-books” income or smaller project fees. That means your tax return may not provide a full representation of your entire income for a given year.
Also, you can provide your 1099 forms from freelance employers if you don’t have your annual returns on hand.
#2: Bank statements
This is another means a self-employed can provide proof of income. Your bank statements would show all your incoming payments from clients and sales. In this case, it is recommended you open a separate bank account for your business or income. That way, it will be easier to present records of only what you make from your business to your landlord or lender, and not personal finances.
On the other hand, if your bank statements include your personal finances, you will want to take some time off to go through the statement and clarify your incoming payments and business expenses before presenting it as proof of income.
#3: Profit and loss statement
This document tracks your costs, revenue, and business-related expenses over a specific time frame. This is the type of document self-employed people who operate as a business entity usually generates as proof of income. If you are a freelancer, you can use it too.
To get a profit and loss statement, you only need to speak to your accountant to help you get one. At the same time, you can get some software that can help you set up such a document on your own.
#4: Use online accounting services
There are some online accounting services that can help track payments and expenditures. For instance, if you conduct a lot of your business online, you can use a service such as PayPal to help you keep track of your deposits and expenditures. You can as well generate your own personal pay stubs to keep track of income, no matter your type of self-employment.
Generating a solid proof of income can be much easier when you are more organized and able to stay on top of your own cash flow.
Final Note
Now, you can see that providing proof of income for self-employed is not as difficult as most people think. You can enjoy the full benefits that come with being self-employed without having to lose your head on how to provide proof of your income.
For a summary, there are different options by which you can provide proof of income as a self-employed. You can get your tax returns, your bank statement, or your profit and loss statement handy to serve as your proof of income. Keeping constant documentation is important when it comes to proving your income. So, always ensure you are on top of this as you go about your daily activities.
