Get Proof of Earnings for a Self Employed Person
It isn't as easy to provide proof of earnings if you are self-employed as you don't necessarily have regular pay stubs or W-2 forms to provide as evidence of income. The most common reasons you would need to provide proof of income involve obtaining a mortgage, rental property, personal or vehicle loan, or certain types of business credit. However, there are some documents that you can provide to show your income if you are self-employed.
Contents
Steps
Applying for Financing
- Know what lenders and creditors are looking for. Creditors will want to make sure you are credit worthy.
- Creditors will want to lend money to a person who has a good credit history.
- They will want to know what your monthly or yearly income is, as they will want to make sure you can handle your monthly payments.
- They will look into whether or not you have something as collateral, such as a house or car that can be used against the debt if you cannot manage payments.
- They will also look into your character, such as past employment and any criminal records.
- Know your credit status. You can get a free credit report online to look into your credit.
- Keep track of all your accounts, and pay bills on time.
- If you have any late payments on your credit report, check into them. If they have been paid, dispute them with the credit agency.
- Make sure you aren't taking on too much debt. You can look at the amount of any revolving debts you have on a credit report.
- Fill out any applications for credit, loans, mortgages, or rentals. Fill out all forms completely and honestly.
- Be prepared to submit proof of income, including but not limited to, tax returns, sales receipts, bank statements etc.
- Meet with your bank or lender in person if possible to fill out applications and make introductions.
- Don't be alarmed if a lender wants more information than asked for an on application. They just want to make sure you are a good candidate for a loan or credit.
Providing a Tax Return
- Make sure you qualify as self-employed. Only certain individuals are classified as self-employed for tax purposes.
- You are considered self-employed if you are the sole proprietor of a business or an independent contractor.
- You can also be part of a partnership that carries on a trade or business.
- If you are otherwise in business for yourself, you are also considered self employed.
- This can include things like babysitting from your home, income from cosmetic sales, taking in roomers or boarders, rental income, profit from swap meet sales, can collecting, or blood/plasma sales.
- File a yearly tax return. You are required by the IRS to submit a federal tax return on all income you earned in a year.
- The deadline is April 15th, but typically you can file an extension if you need longer to get together your required documents.
- If you are self employed, you need to use Schedule C or Schedule C-EZ if you are filing a return.
- You will also need to file Schedule SE (1040 form) Tax for Individuals to pay your Medicare and Social Security Tax.
- Consider having a professional file your taxes. Filing taxes can be difficult for self-employed individuals, particularly in the first year of business.
- Make copies of all receipts, statements, bills, invoices etc. related to your self-employed income.
- Provide these to your tax professional.
- Report any undocumented income as well.
- Keep a copy of your tax return. Once it is filed, it will contain all information about the money you earned in a year and serves as a proof of income.
- It is a good idea to keep at least 5 to 7 years of tax returns in a file.
- Some lenders and creditors will want to see multiple years of proof of income.
- These can help you document if your business or self-employed income is growing, which will be more attractive to potential creditors.
Providing Copies of Bank Records
- Save your monthly bank statements. These usually come in the mail or electronically once a month.
- These will document any deposits you made and any expenses related to self-employment.
- Try to keep these on file for several months at a time.
- Make sure you keep your statements for different accounts separate.
- For example, if you have an account that you mainly make personal purchases out of and a business account, you will want to keep these statements separate.
- Visit a branch of your bank to get copies of statements. If you haven't gotten a statement or need copies of the past few months or years of statement, your banker can help you get these.
- Most banks have these on file electronically for the history of your account.
- Your bank can either print a statement for you or have one mailed to you.
- If you are requesting multiple statements, it is often best to do this in person rather than have them mailed as they contain sensitive information about your bank account.
- Make sure you bring your ID to the bank with you to verify you are the account holder.
- If you have online banking, you can often access these and print them at home if you can't get to a branch.
- Keep copies of all deposit slips. These can help you show income because they are a record of money going into an account.
- Deposit slips will have the date of the deposit, the amount, and your name or business on them.
- These can document exactly how much income you have going into an account.
- When a deposit is made, these are often stamped or printed on for verification by the bank. Sometimes, the bank will provide you with a paper receipt for your deposit. You should keep all of these records.
- Supply bank statements and deposit slips/receipts to your creditors. These provide a long-term record of your finances.
- These will help your creditors or lenders know exactly how much income you are bringing in along with your expenses.
- If you can show a high income to expense ratio, you are more likely to get approved for credit or financing.
- If you can, provide at least 3 months of statements and deposit receipts.
Providing Other Documentation of Income
- Consider using a payroll program. If you pay yourself a percentage of profits or regular salary out of your self-employed income or business, you can actually process payroll receipts to yourself.
- These can document how often you are paid and how much. If you are part of a partnership you may consider paying yourself a regular salary rather than drawing on a business account as needed.
- You can write official checks out of a business account into a personal account to show income.
- You aren't necessarily required to deduct payroll taxes in this event, though this income is considered taxable by the IRS.
- Make invoices and receipts for all sales and services you provide. Have your customers sign these as proof of services rendered and as proof of payment for those services.
- Keeping these can also help you keep track of your income for tax purposes.
- It is also a good idea in case there is a customer dispute later.
- These can help you show a creditor or lender that you regularly bring in income from your business or self-employment.
- Keep a spreadsheet of all expenses and payments in and out of your business or job. This will keep you organized and
- This can help you keep track of a number of factors in your business in the same place.
- By using a spreadsheet you can track customer accounts, all your business or employment expenses and profits.
- If you have paper documentation for each of these items, make sure you note in your spreadsheet where it stored so you can access it for a lender or creditor.
Tips
- Always document every expense, sale, and profit no matter how small.
- Keep records dating back several months if not years.
- Make sure you file a federal tax return. This is often the best documentation of income you can provide.
Related Articles
Sources and Citations
- https://www.wellsfargo.com/financial-education/credit-management/five-c/
- http://www.consumerfinance.gov/askcfpb/311/how-do-i-get-a-copy-of-my-credit-report.html
- ↑ http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center
- ↑ https://www.bankofamerica.com/deposits/manage/faq-account-statements.go
- http://quickbooks.intuit.com/r/money/salary-or-draw-how-to-pay-yourself-as-business-owner/