I have been self employed for well over a decade. Based on my experience, it has gotten a lot easier to show proof of income for self employed individuals in recent years. In particular, it’s a lot easier to show that proof as a gig worker/ freelancer/ independent contractor than it was a decade or two ago. Still, it’s not always easy. Here’s what you need to know.
Why Do You Need Proof Of Income?
The most common reason that you’ll need to show proof of income is because you want to get a loan. Whether you want a personal loan or a business loan, you need to prove to the lender that you are a good borrower. Your credit history is part of that. But without a solid income, they aren’t going to be sure that you have the ability to pay them back.
You also may need proof of income for other things. If you are trying to rent a house then your potential new landlord might ask for proof of income. Sometimes you need proof of income when trying to get insurance. Basically, whenever you’re trying to get someone to give you something based on your ability to repay them, you should be prepared to show proof of income.
Proof of Income When Self-Employed
Historically, it hasn’t been easy to show proof of income for self-employed people. When I started out working as a freelance writer, I did a lot of research into the personal finance side of that choice. At the time, it seemed like I really needed to establish myself as a sole proprietor business in the eyes of the law. While there are still good reasons to do that, showing proof of income for self employed life isn’t necessarily one of them anymore.
Thanks to the prevalence of self employed workers in the gig economy, things have shifted a bit. It’s much more normal and accepted now to work as an independent contractor. As a result, it’s easier than before to get loans, rent houses, and do other business as a self employed person. However, you still need to show proof of income.
Tips for Proof of Income for Self Employed People
Here’s what you need to know:
- Your 1099 tax form is the single biggest proof of income for self-employed people. If you don’t claim all of your income, or if you take too many deductions, then you might not have the proof of income you want. Think about that each time you file your taxes.
- You can use your bank account to show proof of income for self employed life. Wise tip: separate your personal and business bank accounts. Pay yourself personally out of the business account. Use the business account to show your income.
- Prepare annual profit and loss statements. This isn’t a requirement but it goes a long way towards proving your income and your legitimacy as a business person.
- Use software. You can track payments and expenditures, create pay stubs for yourself, and otherwise create a “paper trail” that shows proof of income.
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