6 Ways To Prove Your Self-Employed Income As A Contractor
Around 30% of America's workforce is self-employed. This means an increasing number of people don't earn a traditional paycheck. How then do they prove their income? Is it using a pay stub generator? While this shift can provide a more convenient and beneficial lifestyle, it does have its drawbacks.
For instance, if you want to get a mortgage, rent an apartment, or get a loan, and you don't have a paystub from an employer to show proof of your income. Well, don't worry! If you need to prove self-employed income, here are 6 ways you can do so.
1. Submit Tax Returns
You aren't required to submit a tax return every year; there are certain thresholds you need to meet. However, if you're getting all your income solely from being self-employed, then the chances are you'll easily exceed that threshold for whatever category you fall under. You'll also probably have to file a 1099-MISC; this is required if you earn over $10 in royalties or over $600 from any of your clients.
Because of this, you most likely file tax returns yearly. An easy (and non-laborious) way to show proof of income is to take your tax return and submit a copy to whoever needs proof of income. Do note that some landlords or lenders may require two year's worth (or more) of tax returns. This may be a problem if you've only started freelancing or didn't file the year before the last.
In this case, you may need to combine last year's tax return with another method on this list. Just a tad bit complicated but it works!
2. Submit Your Client Invoices
As a self-employed person, you probably submit invoices to your clients to keep track of what work has been done, and what needs to be paid out. These are excellent for submitting as proof of income, as it'll be detailed records of what your clients have paid you and when. However, if you have many clients and do multiple jobs for them, this can quickly add up to a huge stack of papers.
If this is the case, then you may be better off choosing other options from this list. Otherwise, you already have the invoices in your records, so all you have to do is print them out.
3. Submit Your Profit and Loss Statements
Something else you can use to show your proof of income is your profit and loss statements. If you don't currently use them, we highly suggest starting now. Not only can they be used as proof of income, but they can also help you track your net income better. You may seem like you're doing well in terms of profits, but in reality, you may be losing a significant amount of money to an expense like rent.
Putting all your income and expenses in one form will show you your overall profitability. This can help you assess whether or not you should continue with your self-employment.
4. Show Your Bank Statements
While this isn't an ideal primary way to show proof of income, it can be an excellent way to supplement any of the other methods on this list. For example, you can combine your bank statements with last year's tax return to show your landlord proof of income. The only issue with this method is the person asking for proof of income can see all the transactions you've made.
If you're not comfortable with that, then you'll have to take this into consideration. Of course, you may be left with no choice but to provide bank statements, especially if you don't have many other viable options. In that case, you may be able to print out the statements and black out any lines you want to leave private. Explain that it's sensitive information.
If you do decide to go this route, make sure you don't do this to too many lines. This can reflect poorly on you and cause the landlord or lender to pass you over or reject your request for a line of credit.
5. Generate A Pay Stub
You may not have an employer, but you can still create a pay stub for yourself. This is essentially like showing your invoices and/or bank statements but in a neater form. You can go through your statements and invoices to create monthly pay stubs to show the inquirer. There are many ways and platforms one can create a pay stub easily.
6. Letters From Clients
This is also another secondary way to verify your streams of income. Seeing as a letter won't prove the amount, you'll have to back it up with something like a bank statement or tax return. Letters from clients can be an excellent way to prove your income because not only does it achieve that, but it also proves to the inquirer that you're a person of character. It can be especially beneficial if you've worked with that client for a long period of time.
Since letters can easily be forged, some landlords or lenders may not accept this as proof of income. Physical letters are better than emails since they'll have letterheads that are harder to forge.
Prove Your Self-Employed Income Easily
There you have it: 6 easy ways to prove your self-employed income. The next time a lender or landlord asks you for this, you won't be flustered! You'll have several methods to choose from to make whatever milestone easy to achieve. The best thing is, you can never have too much proof. So feel free to combine two or more of the above methods to increase your chances of success!
Need the cheat sheet on how to pay off your tax debt quickly? Check out this step by step guide. Ready to get started on proving your self-employed income? Then check out these templates to get started today!
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