Over the past year, freelancing as a career has risen by over 41%! Because of the rapid shift in people becoming self-employed, there are many questions about how self-employed people are supposed to manage their income, most importantly, how to show proof of income.
We are here to answer these questions with this simple guide! We will explore different types of proof of income that you can use as a self-employed person, so before you get stuck scrambling for the right documents, read this article!
What Is Proof of Income?
Your proof of income is documentation that proves how much you earn or have earned over a specific period of time. Proof of income is often required for major purchases, renting or buying a home, loans, and more.
If you are employed by traditional means providing proof of income is fairly simple; however, being self-employed requires you to provide alternative documents to prove your income. Let’s take a look at some options for self-employed proof of income.
Tax Returns
In most cases, your most recent tax returns are regarded as the most accurate proof of income. Most self-employed people will use a 1099 document to file their taxes, and this document can be used to show their income. With that being said, your tax documents showcase the entire year’s earning, so in some cases, such as when you need to prove recent income, tax returns are not the best proof of income to use.
Employer Documents
Some self-employed people work with third-party hiring agencies that might be able to prove a paystub. So, what is a paystub? A paystub showcases exactly what you have earned during a specific pay period and can provide the most accurate to date information on your earnings.
Additionally, an employer can provide a proof of income letter stating what you have made during a specific period of time. The letter helps verify employment and can be used as a recommendation for lenders.
Bank Statements
Your bank statement is another great way to show proof of income. Most modern banking apps will allow you to create reports that showcase income and expenditures based on specific criteria.
The trouble with bank statements is if you keep your business and personal income and expenses consolidated into one account, it becomes easier for you to misidentify what the business expenses are versus personal. So, if you are self-employed, it is best to keep your business and personal accounts separate to show proof of income less confusing.
Proof of Income Made Easy
These simple solutions make showcasing your proof of income a breeze! Just remember, as a self-employed person, you are solely in control of your finances, so keep organized, and you will have no problem managing your proof of income!
We would love to connect further with you as you continue your new path as a self-employed person! Visit the rest of our site today to learn more about how we can help streamline your day-to-day!
Interesting related article: “What is a Tax Return?“