Tips on Proving Income when Self-Employed
Welcome to Self-Employment
During the downturn of the economy in 2008-2010, also known as the Great Recession, many people who were laid off found other means to generate income within the downturn, with some turning to dreams of becoming self-employed. Many people have thoughts of owning their own business, if just to have only themselves as a boss or finally being able to do what they have always wanted to do.
While the general idea of starting a small business has many positives, there are some drawbacks too. One of those drawbacks is trying to prove where your income is coming from, especially when you don’t exactly receive a pay stub for your work. Below are ways in proving income when self-employed when asked.
Proving Income When Self Employed
There are a few ways to prove income when someone is self-employed, including a tax return, a bank statement, or an invoice.
Tax Return - this is probably the number one way to prove your income when applying for an apartment, house, utilities, etc.
The drawback to this is if you have just started your freelancing or home business, as you may not be able to prove monthly income. Also, you may not want to share your tax return with a stranger, especially if one year wasn’t as productive as you would have liked.
Bank Statement - Bank statements are a good indicator of how much money you have or are making. For some utilities or health providers, it does not matter where the money came from, as long as there is an indication that you have the necessary funds to pay the monthly charged fee.
Invoices/Contracts - Depending on what your self-employed business is, you may have signed contracts that guarantee you will be getting a steady income from a certain client or business. Usually for mortgage lenders, this isn’t a good source on determining your income, but having this may work for other such matters, like utilities.
Recommendation Letter - If you’re moving into an apartment, some leasing agents or managers may accept a letter of recommendation from your current landlord or landlady. This may work, if you tell the person that you are self-employed, so that they are aware that you may not be able to provide proof of income through a pay stub.
In most cases of proving your income, it does not matter what the employment is, just as long as you can prove that you receive regular payments. If you have just started your self-employment, before you begin to rent or buy, you should seek tax advice, and learn what other ways you can prove income. Also, with advice from a reputable tax specialist, you can have a better understanding on how to fill out your tax return a year later, which can help if you plan on using that for proof.
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