There are a few instances in life where you need to provide proof of income. For salaried employees this is easy but things can get tricky when you’re self-employed. It’s not impossible to prove how much you’re earning and here’s how you can do it.
For self-employed contractors or small business owners, providing proof of income can be difficult. Unlike a salaried employee, you don’t have pay stubs that accurately report your monthly or annual income.
Luckily there are other income verification documents you can use to make major purchases. In this blog, we’ll show you how to show proof of income without pay stubs.
Tax Forms
Independent contractors are issued 1099-MISC forms annually from clients to document money they received in excess of $600. Before receiving a 1099 form, contractors must complete a W-9 form that provides the client with your address, taxpayer identification number (TIN) or SSN, and full legal name.
Customers will mail you a copy of the 1099-MISC upon request or they’ll automatically send it to you during tax season.
For small business owners, Schedule C tax forms will likely report their business profits and losses. In addition to a Schedule C form, most business owners will also have to file a Schedule SE form that reports their self-employment income.
Each Schedule C form has five parts. The first part is for your business income and gross profit. In the second section, you calculate your net profit by subtracting your business expenses from your income. Your calculations will be reported on your income tax return.
Sections three through five are for any inventory you purchased for the business and extra deductions or expenses.
Schedule E forms are for self-employed workers that receive royalties or other forms of passive income. If you own property and collect rent, write songs, or have an estate or trust-you will file Schedule E forms and present them as proof of income.
Tax forms work as income verification documents because they are assessed by the IRS.
Bank Statements
Providing your bank statements may seem a bit invasive, but it is one of the best income verification documents. It shows your monthly bank deposits and withdrawals.
The bank issues statements every month complete with the bank’s information and your name/address.
To protect your personal information, blot out your account and routing numbers. Most places will ask for at least three months worth of bank statements to gauge your average income.
Business License and Bond Insurance
If you own and operate certain types of businesses, you’ll need to obtain a business license to practice in the city.
You can present your license as one of your income verification documents. Contractors or business owners with bond insurance can use their bond as proof of income.
Fidelity, business service, and contract bonds are three types of surety bonds that provide coverage in the case of theft or purchasing inventory.
These documents will usually be required when you’re purchasing a home or taking out a loan.
Companies want to see that you own a legitimate business and you have financial protections in place
Letters from Clients
You can always ask your clients to write a letter on your behalf stating their relationship with you and the amount of money they pay you for your service.
They can also include a copy of the invoice and payment receipt. In the letter, have the client state details about the service and service date.
It helps if you also keep a ledger of your services and clientele to support the letters, bank statements, and invoices.
This is almost like an employment verification letter. The client should also include their name and telephone number in case the company wants to call them to verify the letter.
Make A Paystub
Another way to show proof of income is to make paycheck stubs online. The first step in the process is to gather your latest invoices and bank statements to list the net pay and tax information.
An online generator will ask you for your name, address, and phone number as well as the company’s location information.
Next, it will ask you to list any deductions such as union dues, social security, and income tax.
The generator fills in the processing information such as check number, date, annual income, and when you’re paid (weekly, bi-weekly, monthly, etc.)
Most sites have an easy-to-use interface and will do all the formatting for you.
Always Be Prepared to Show Proof of Income
As a self-employed entity, you should always have these documents on hand so that you can easily verify your income.
Keep reading our blog to learn more finance and small business tips.