Whenever you need a loan, what is the one document that you need to furnish? Besides the others, the proof of income for self employed is a crucial document that is always needed by any bank to lend you money. It’s obvious, isn’t it? If you are asking for money, the bank would want to know your employment status before they can even think of sanctioning you a loan. They would want to know how much you make and how often you make money. They would always ask you, in one way or another.
What is proof of income?
This can be easy for those who earn a fixed salary every month, but it can be tough for freelancers to answer this question- how to prove income when self-employed.
Let us see some of the ways you can prove your income sources
Usually, this depends on a case-to-case basis. Various lenders may have different document requirements to fulfill. Pay stubs are generally the main document your lender may need.
Other documents needed could be your last year’s federal tax return and other basic details
like-
✔️ Your full name
✔️ Social Security Number
✔️ How much you make
✔️ Employer name (as and when applicable)
Some of the common proofs of income documents
From your employer
There are 2 main documents that you can get from your employer.
Pay stubs– Many lenders ask for pay stubs for specific periods. This helps them know how much you make every month in wages and other allowances.
Proof of income letter– You may need this as proof of income or as a verification letter from your employer.
From your tax documents
Your tax documents are crucial for lenders to know how much you make. Do not take these lightly, always keep copies with you after tax season ends.
Though these aren’t as accurate as pay stubs to know your income, they help the lender give a more precise picture of your income during the year. There are 2 tax forms that you need to retain.
Last year’s tax return– This gives a complete picture of how much you earn and what assets you own. This is an important document to prove income sources.
Wage and Tax statement– Also called W2 forms, these are given by your employers to give a snapshot of your income. You can request your employer to provide you this as and when you need it.
From other unearned sources of income
Many of these are government-issued. Though lenders consider these as sources of income, these cannot be relied upon as they aren’t consistent. They include-
Social Security Proof of Income letter– This is a government-issued letter that can help you take credit. Not only you, but even your loved ones can also procure this letter for credit.
Annuity statement– This is a document between you and your insurance company that provides you a monthly income against a lumpsum investment. You can get your annuity statement from your insurance broker.
Pension Distribution statement– Also called the 1099-R form, there are many ways you can use this statement.
Read this to know more.
Court-ordered statements/agreements– Child support and alimony come under this category. Your court will issue you this statement as and when needed.
Unemployment benefits– Many state governments give temporary financial assistance to people who are temporarily unemployed provided they meet certain requirements. You can get a copy of your unemployment benefits from your state’s unemployment office.
Worker’s compensation letter– Those who have got injured during work can get free medical aid and wage replacement benefits. Your insurance company that handled the case can give you a copy of this letter.
Self-employed individuals can use the following forms for proof of income Self-employed individuals need to organize their payment structures so that they can easily calculate their proof of income. They can use-
Bank statements– This is the obvious proof of income for the self-employed. It is recommended to have separate bank accounts for business and personal use so that keeping accounts becomes easy.
Wage and Tax Statements for the self-employed– Also called the 1099 form, it helps you to know your exact worth. It is reliable proof of money and a legal document.
For those of you who need self-employed proof of income for an apartment, landlords generally ask for pay stubs, last year’s tax returns, and proof of income letters.
Generally, landlords do not accept forms or documents for short-term streams of income. You will need to show income generated from long-term jobs or contracts.
Summing it up
You will have to keep all your tax statements and pay stubs with you at all times. It makes sense to properly file all these documents so that you can get them whenever needed. Even if you are self-employed and have hired a few employees, it makes sense to use a paystub generator to get all your documents in order.
Create your stub now
