How to Show Proof of Income For Self-Employed People

November 16th, 2023

Homeowner Guides | Buying
How to Show Proof of Income For Self-Employed People

How to Show Proof of Income For Self-Employed People

Are you considering being self-employed and want to learn more about how to show proof of income? Check out this guide of ways to show proof of income as a self-employed person. 

Finding the best job for you can be stressful yet exciting; many people prefer to become self-employed. Whether you are self-employed for independence, wealth, satisfaction, or flexibility, proof of income is still vital. Proof of income is essential to obtain loans, rentals, and several other financial transactions. 

Typically, traditional employees obtain proof of income through pay stubs or an income letter from their employers. It is a bit more tricky for self-employed people. However, it is not quite as confusing as you might think. It is actually relatively simple. 

There are several ways in which you can show proof of income as a self-employed person. Still, similar to buying a house and working with a real estate agent, it is always advisable to work with a professional. Although it is advisable, it is unnecessary, and you'll find that the process is not as complex as it may seem. 

If you or anyone you know is considering becoming self-employed, then it is essential you find out how to show proof of income. Check out this helpful guide to learn how to show proof of income as a self-employed person. 

Keep reading to learn how to show income proof for self-employed people. 

1. What is Proof of Income?

Proof of income is the documentation or evidence used to show how much money a person earns within a certain time period. It is used for several reasons, such as verification of financial stability, the ability to repay loans, fulfill financial obligations, or obtain government assistance. Depending on your employment status, your proof of income may come in several different forms.

You'll definitely need proof of income if you are buying a home and need a loan, as lenders will want to guarantee you will be able to repay the loan. This is why it is essential to save up as much as you can before buying a home

For self-employed people, you can use various forms as evidence. The process can seem complex, but it is fairly straightforward. All proofs are viable, but some always make sure to check which kind of proof is needed for the specific purpose you need. Banks, for example, usually favor tax documents or payslips from a certain period. 

There are several types of proof of income, including tax returns, bank statements, court-ordered payments, social security benefits, W-2 or 1099-MISC forms, and a proof of income letter. Your proof of income should include your full name, the date, and any other identifying information. This could be your social security number or ID number. 

You might have different types of income. There is earned income, which could be from a job like tips or salaries, and unearned income, which would be unemployment benefits and pensions. Whichever type of proof of income you need to show, double-check that all the information is accurate and up-to-date. 

2. 1099 Form

A 1099 form is best for accurate reports of income for the IRS. As a self-employed person, you'll get these forms from clients or businesses that pay for your services. Typically, these are only used for self-employed people, investors, contractors, and rental income. There are several different types of 1099 forms, so be certain the one you are using is the correct one.

This form is one of the best forms to use as proof of income as it serves as an official document for income. Self-employed people will most likely receive a Form 1099-NEC (non-employee compensation) or Form 1099-MISC, which is used if you have several different income sources.

This form is accepted by many institutions, saving you time and stress. Most landlords, lenders, and government institutions will allow a 1099 form as proof of income. In addition, it'll be helpful in finding any discrepancies in your reported income, which is necessary when dealing with the IRS. 

In some cases, not all of your earned income will be reported on your 1099 form, so bring any additional documentation or records of that extra income. This complete record of income is advantageous for providing you with proof of income and financial status. 

1099 Form for Proof of Income as Self-employed Person

3. Profit and Loss Statements

Profit and loss statements are used to convey the income and expenses of your business over a period of time. Typically, these are done monthly, quarterly, or annually. In addition, these show your net income after deducting business expenses. 

These are essential for business owners and stakeholders to view the financial well-being of the company. In other words, they are used to see the strengths and weaknesses of a company. You would use this to make business decisions, financial planning, and assess the company overall.

Profit and loss statements are great to use when seeking loans and either own the business or are self-employed. These statements are not usually used as proof of income by people who hold traditional jobs and are not self-employed. However, freelancers do use these statements on occasion. You can either reach out to an accountant or use software to document the information yourself. 

4. Provide Your Federal Tax Return From the Previous Year

Many self-employed people use copies of Federal tax returns from the previous year as proof of income. Usually, these are from the last two or three years. Tax returns depict your individual income, expenses, deductions, and tax liabilities for a certain period. Typically, your employer will provide these annually.

As a self-employed person, filing your tax return is a bit different than filing your tax return. The first step is to organize your financial records by gathering them up and including your income statements, invoices, bank statements, expense records, and any other important documents in relation to your business. 

Most self-employed people complete Schedule C forms to report income and expenses, and then the net profit or loss is transferred from there to your 1040 form. Once you have paid your estimated taxes and submitted the return, keep the records, as this is one of the best ways to show proof of income as a self-employed person.

In some cases, as a self-employed person, you aren't required to report income below a specific amount, meaning the tax returns might underestimate your total earnings. If this happens, bring additional documentation of the extra income that wasn't recorded. You can use annotated bank statements along with your tax return.

If you run into any problems, consider help from a tax professional or accountant. Similar to buying a house, it is always easier with realty specialists to help you avoid common mistakes. 

Accurate tax returns from the previous year can be used as proof of income

5. Receipts and Sales Records

As a business, you'll need records of payments from clients or customers. These can come in different forms, like electronic payment confirmations or receipts. Keep these transactions recorded as documents.

Online payments from clients or customers can be used as legit proof of income. Just be certain to generate a full report of all payments received. Compared to other proof of income documents, receipts, and sales records do not account for cash and check deposit payments. Be sure to supplement these with another proof of income in order to have a complete record.

Keep all receipts and sales records as organized as possible, then create a summary or spreadsheet. This should specify the date of sale, the client's name, the type of transaction, and the product or services you provided. 

Once you are prepared to apply for a financial agreement, explain your business and how the receipts and sales records are an accurate representation of income. 

A self-employed person could use an accurate and organized list of receipts as proof of income

6. Bank Statements

Your bank statements show all the regular deposits from your business activities. It will show all incoming payments from clients or sales. As a self-employed person, it is advisable to create a separate bank account for business-related transactions. This way, you won't have to show personal finance details to lenders or landlords. A separate bank account will also speed up the process for lenders or landlords to review your bank statements. 

Before you present bank statements, make sure to correctly identify your incoming payments and business expenses. Not only are bank statements used as proof of income, but they will help you with financial planning, resolving discrepancies, and overall record keeping for your company.

As a self-employed person, you can attain a bank statement online or through your bank's website, request one from the bank, or receive a paper statement through the mail. It is about the same process as a traditional employee. Once again, go through and make certain the information is correct and up-to-date so you won't run into any unnecessary issues when using them as proof of income. 

Provide accurate bank statements as proof of income as a self-employed person

7. Pay Stubs

Generally, pay stubs are used by traditional employees as proof of income. Although, a self-employed person can create their own pay stubs to record their earnings. But, the process might be a bit more tricky as you'll need to account for deductions like Social Security and Medicare on your own. 

Always record your new pay and have a data range included to prove when the income was earned. There are online generators to make this process a bit easier. Paystub generators will give you the proper format and double-check the information. 

Be careful using pay stubs as proof of income and confirm the entity will accept this as a legitimate proof of income. It is vital to keep other records like bank statements and tax documents in this case. 

Be sure to use any of these documents as proof of income as a self-employed person

FAQ: Proof of Income For Self-Employed People

Here are some commonly asked questions about how to show proof of income as a self-employed person.

How do you get pay stubs if you are self-employed?

Self-employed people create pay stubs through pay stub generators. You can work with professionals or manually input the information with software programs. There are several pay stub generators available online for free. 

What is an income statement for self-employed?

An income statement for self-employed people still summarizes income and expenses for a certain time period. You can list all revenues at the top and all the expenses after. 

Can I use bank statements as proof of income?

Bank statements are commonly used as documents for income verification for self-employed people and retirees. 

What is proof of income?

Proof of income is documentation of how much you have earned over a specific period of time. Usually, you'll be asked for this to prove you have a steady source of income through bank statements, pay stubs, tax returns, and other legal documents. 

What is proof of income for a loan?

Typically, in order to obtain a loan, lenders require proof of income and identity to approve you for a loan. This shows that you will be finally able to repay the loan. The documents you'll be asked to provide include copies of your state or government-issued ID, paystubs, tax returns, or bank statements. 

Proof of Income For Self-Employed People - The Bottom Line

Whenever you present these documents, always make sure the information is accurate, up-to-date, and organized. Different institutions may differ in the requirements or preferences they have for proof of income. So verify which documents you need to bring, as they may also vary depending on the purpose for which you need to prove your income. 

You'll need to show proof of income for several reasons; the most common reason is for a loan. As you search for your dream home, one of the biggest mistakes first-time home buyers make is not getting a mortgage pre-approval. For this, you'll need proof of income. 

Once you have shown proof of income and are approved for a loan, you are all set to find the best home in the best location. Raleigh, NC, is one of the fastest-growing areas in the country and has many beautiful homes for sale; you'll have to act fast if you want to buy your dream home in one of Raleigh's best neighborhoods

Before you buy your next home in the Triangle, feel free to contact one of our helpful real estate specialists, as they are eager to help you find the perfect home. We know that buying a home can be overwhelming, so make sure you are prepared beforehand. 

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Ryan Fitzgerald

Ryan Fitzgerald

Hi there! Nice to 'meet' you and thanks for visiting our Raleigh Real Estate Blog! My name is Ryan Fitzgerald, and I'm a REALTOR® in Raleigh-Durham, NC, the owner of Raleigh Realty. I work alongside some of the best Realtors in Raleigh. You can find more of my real estate content on Forbes, Wall Street Journal, U.S. News and more. Realtor Magazine named me a top 30 under 30 Realtor in the country (it was a long time ago haha). Any way, that's enough about me. I'd love to learn more about you if you'd like to connect with me on Facebook and Instagram or connect with our team at Raleigh Realty. Looking forward to connecting!

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