Quick and easy ways to prove self employed income

There are many reasons why people prefer self-employed work to regular jobs. One such reason is that the former affords them control over time and work rates, aside from the fact that they earn from as many clients as possible. However, this often poses a challenge when the need arises to prove business income.

Earning different sums from different sources can be hard to keep track of, but it must be done to stay tax compliant and qualify for certain loan and utility services. But no need to scratch the tip of your nose on this one because we hope to guide you through. Proving your income does not have to be as difficult as it seems. All it demands is that you take proper records of financial activities and keep all relevant documents securely. 

Let's show you all about proof of income, why it is important, and how Workee can help you with this. But before then, let's get the hang of proof of income, shall we?

What is proof of income?

Proof of income is any report or set of reports showing your earnings as a freelancer over a certain period, like six months or a year, as the case may require. They are usually requested by banks, insurance, service providers, etc., to determine your creditworthiness. The format of these reports often depends on the party requesting them, and some reports are considered more credible than others.

Proof of income is not a big deal for full-time workers. An offer letter, paycheck, or any can do the trick. However, the situation is different for self-employed individuals like freelancers who often do business with several clients simultaneously. For them, having accurate proof of income means that they keep track of all transactions between each client, no matter how many there may be. This may seem daunting at first, but all it needs is keeping track of all necessary financial paperwork. And with the right tools, you can even do it mindlessly.

However, it gets even more interesting as Workee's integrated payment solution keeps a digital record of all your work-related transactions, which can be accessed anytime and anywhere. Hence, freelancers do not need to rack their brains trying to keep track of all their transactions with clients. 

Why do freelancers need proof of income?

Freelancers are workers too, and in the course of living and working, situations requiring proof of income may arise. For example, there may be a need to undertake one or more financial transactions that require some form of credit, such as mortgages, personal loans, insurance, etc. Of course, the loan or utility provider must ensure that the individual can keep their end of the bargain. Thus, they usually demand verifiable proof of income as part of due diligence to know the individual's income brackets.

Also, since freelancers are not exempted from tax, proof of income is required if they must accurately file their taxes and also enjoy task deductions. Workee records your work transactions and automatically calculates and remits your tax. Easy.

How to provide proof of income

Regular full-time employees have it easier when showing proof of income. A copy of the most recent bank statements and a W-2 form do just fine. The W-2 form is a document provided by an employer showing wages earned and deductions made. Since self-employed persons do not have W-2 forms, they look for alternative documents for proof of income. Freelancers can prove their income through any of the following documents:

1. Annual Tax Returns (Form 1040)

Tax returns are the most credible and widely accepted declaration of income. They are filed at the IRS and recognized by other government financial and health institutions. A federal income tax return is proof of all your earnings within the year. It is generally accepted as a legal document.

2. 1099 forms 

These are reference forms sent by a business party that has paid more than $600 over one year. The form is filled out and sent out to the IRS by the payer, and a copy is sent to the payee to help them fill out their tax returns. 1099 forms can be used as a substitute proof of income where annual tax returns are unavailable.

The caveat in using 1099 forms is that they are only sent for transactions above $600. Thus, they may not be sufficient to show all business income. Freelancers who use 1099 forms often supplement them with attached documents like a bank statement containing records for income that can not be included in 1099 forms for amount.

3. Bank statements

The good thing about bank statements is that the banks do all the paperwork for you. The bank records all your financial transactions and gives them to you on demand. It works best to have separate accounts for business and personal banking. Where this is impossible, one must highlight business transactions, separating them from personal ones, to reach an accurate figure of total business income.

4. Profit and Loss statements 

A profit and loss statement shows income and expenses from your work. It is for personal benefit, not usually done for the scrutiny of others, but it serves as a guide for freelancers to keep track of profit and loss. This helps them identify blind spots and leakages, know what to fix, and make better decisions to improve the quality of the business.

5. Self-employed pay stubs 

Pay stubs used to be a thing for only regular workers, but not anymore. Many freelancers now use pay stubs to keep records of their income and show proof of income. A pay stub for self-employed workers must include gross earnings, deductions like taxes and premiums, and net pay obtained after subtracting expenses from gross earnings to serve as proof of income. 

Proof of income might be difficult for newly self-employed workers, but it gets easier with time. And with Workee, it is not just simpler but more enjoyable. As we have hinted at multiple times in this article, Workee provides an integrated payment solution for self-employed workers like freelancers, tutors, and teachers to conduct all financial transactions. Using Workee, you can issue automated invoices to clients and receive and send payments anywhere in the world.

Workee allows freelancers to set up a free, instant, no-code website from which they can connect with clients from anywhere in the world. Freelancers use Workee's scheduling tool to create and meet up with appointments. 

Conclusion

It is possible to prove self-employed income without breaking a sweat. All it takes is attention to detail, in-depth preparation, and an understanding of the various documents that can be used to provide proof of income. The most credible and authoritative source is the annual tax return (Form 1040), but 1099 forms, bank statements, profit/loss statements, and self-employed pay stubs are also good options. Whatever method is chosen, it is important to ensure that all documents are accurate and up-to-date. And Workee, being an all-in-one solution for freelance workers, makes it easy to achieve. Sign up now and enjoy the benefits of tracking all your transactions and much more!