Guide: How to Show Proof of Income When Self-Employed

Updated on January 7, 2024

At a Glance

  • Proof of income for self-employed individuals includes 1099 forms, profit and loss statements, and bank statements.
  • Previous year’s federal tax return and self-created pay stubs can also serve as proof of income.
  • Accurate record-keeping is crucial for establishing credibility, especially with irregular income.
  • Methods to track cash payments include self-created pay stubs, bookkeeping software, bank deposits, receipts, or tax returns.

To rent, get a credit card, or secure a loan, you’ll need proof of income. For employees, this typically involves pay stubs or an income letter from your employer. If you have unearned income, the process is also straightforward. However, for the self-employed, proving income can be more complex. This article guides those self-employed on how to verify their earnings.

Quick Overview: How to Show Proof of Income When Self-Employed

If you’re self-employed, you can show proof of income in the following ways:

  • Use a 1099 form from your client showing how much you earned from them.
  • Create a profit and loss statement for your business.
  • Provide bank statements that show money coming into the account.
  • Provide your federal tax return from the previous year.
  • Show pay stubs if you regularly pay yourself.

What is Proof of Income?

Proof of income is a document displaying your earnings over a specific period, vital for many financial entities because it gauges payment abilities for loans, rent, or tuition. The required proof varies by requester, and while all proofs are valid, some are deemed more reliable. For example, banks often favor tax documents and payslips over other proofs.

5 Ways to Show Proof of Income When Self-Employed

Proving income is straightforward for salaried employees but can be challenging for the self-employed due to irregular monthly earnings, making some lenders and landlords hesitant.

However, various documents can demonstrate consistent income, even if the exact amount varies:

  1. 1099 documents
  2. Profit and loss statements
  3. Bank statements
  4. Annual tax returns
  5. Self-employment pay stubs

We’ll explore these in more detail below.

1. 1099 Documents

Any entity that paid you over $600 during the year will send this tax form. It’s their duty to inform the IRS of the payment and provide you a copy. If you lack a tax return, these forms serve as income proof.

2. Profit/Loss Statements

Essentially a financial summary, this document captures income, costs, and gains. Regularly monitoring these factors aids in decision-making and growth strategies. Use an accountant or a personal spreadsheet for this.

3. Bank Statements

For self-employment earnings without a 1099 form, bank statements are invaluable. If combining personal and business banking, delineate business transactions. Opt for banking that segregates business transactions to simplify this process.

4. Annual Tax Returns

The definitive way to showcase yearly earnings, this official IRS document provides a comprehensive income summary. For self-employed individuals, remember: 1099 forms are only mandatory for payments above $600. While this means some income may not have a corresponding 1099, it’s crucial to report every dollar. Include supplementary evidence, like bank statements, for non-1099 earnings.

5. Self-Employed Pay Stubs

Despite seeming unconventional, self-employed individuals can craft pay stubs for record and proof purposes. Whether using a generator or DIY, ensure they feature:

  • Gross pay – Your complete service earnings.
  • Deductions – Calculate components like social security, Medicare, and taxes since they aren’t auto-deducted.
  • Net pay – Your income post-deductions.

How to Show Proof of Income if Paid in Cash Without Pay Stubs

If you don’t receive pay stubs or are paid in cash, it’s still possible to show proof of income. You have a few options, including:

  • Create your own paystubs. If your client doesn’t provide you with paystubs, you can still create your own. Every time you are paid, create a paystub that includes who paid you, the date of payment, the amount paid, and what work you did.
  • Use bookkeeping software. You can also track cash payments in most bookkeeping software such as Quickbooks. The software should ask you for all the relevant information you need to prove you have income.
  • Maintain an income-tracking spreadsheet. If you don’t have bookkeeping software and don’t want to pay for it, you can manually track cash payments. Be sure to include who paid you, the date of payment, the amount paid, and what work you did.
  • Deposit the cash into your bank account. If you deposit cash payments to your bank account, they will show up on your bank statements which you can use for proof of income.
  • Create receipts for those paying you in cash. Another great option is to give your clients receipts for their cash payments. You can buy a receipt book online or use an online tool to produce receipts.
  • Show your tax returns. If you filed your tax returns correctly, they should show how much income you made in the previous year. These can be used as proof of income when you’re paid in cash.

Why Do You Need Proof of Income?

For 1099 workers, proving income is especially pivotal when engaging in financial transactions due to the irregular nature of their earnings.

Instances demanding income proof for 1099 workers include:

  • Renting property
  • Mortgages
  • Car payments
  • Personal loans
  • Health insurance acquisition
  • Securing credit cards
  • Tax filings

Simply put, entities require verification of consistent earnings from 1099 workers to ensure payment reliability. For example, before greenlighting a car loan with monthly installments of $450, dealerships will want confirmation of a 1099 worker’s steady income.

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Final Thoughts

Now you know what type of documents you can show as proof of income when you’re self-employed.

Piece of advice: if you’re self-employed, it’s always a good idea to keep accurate and up-to-date records of your income just in case you need it someday.

This way, you get all the perks of working for yourself while eliminating one of the few downsides, which is providing proof of your income.

Proof of Income for Self-Employed FAQ

Below, you will find some common questions 1099 workers have about how to show proof of income and their answers.

1. How can a self-employed individual show proof of income?

Self-employed individuals can utilize various methods, such as:

  • Tax Return (Form 1040)
  • 1099 Forms from clients or employers
  • Bank statements highlighting regular income deposits
  • Profit/Loss Statements
  • Self-created pay stubs

2. How can I obtain pay stubs if I’m self-employed?

While traditional employees receive pay stubs from their employers, self-employed individuals can generate their own using online pay stub creators or specialized software.

3. What if I need to prove my income but don’t have pay stubs?

You can use alternative documents like:

  • Bank statements showing consistent income
  • Annual tax returns
  • 1099 Forms
  • Profit/Loss statements

4. Can Venmo transactions be used as proof of income?

While Venmo can show transactions, it isn’t a universally accepted or formal method to prove income. For more robust proof, combine Venmo records with bank statements or other aforementioned documentation.

5. Is it possible to use Zelle transactions as proof of income?

Similar to Venmo, Zelle shows financial transactions, but it’s best used as supplemental evidence. Official financial documents or tax forms provide stronger validation.

6. How many pay stubs equate to 30 days of income?

Typically, if you’re paid weekly, you’d have 4 pay stubs for 30 days. If paid bi-weekly, you’d have 2 pay stubs.

7. What documents can I use to prove I have no income?

To prove no income, you can provide:

  • A notarized statement declaring no income
  • Recent tax returns with low or no income
  • Unemployment benefits statements
  • Account statements showing no deposits

8. Can I use my W2 form as proof of income when applying for a loan?

Yes, a W2 form is widely accepted as proof of income when securing loans as it showcases your annual earnings and tax withholdings. However, for 1099 workers, a combination of 1099 forms and other financial statements might be more relevant.

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Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.