There are a lot of pros and cons to being self-employed. You get to set your own hours, choose your own clients, and set up your business any way you want.
There’s a freedom to it that people love. On the downside, there are certain realities. It’s hard to fit in a world that is based on working for someone else.
Nothing proves that more than trying to get a loan and proving your income. A 1099 pay stub is one great way to do just that.
Read on to find how you can prove your income when you’re self-employed.
What Do Lenders Want to See?
Proving your income depends largely on the situation. If you need to prove your income to rent an apartment, you might need one set of documents.
To get a home loan, you need everything but the kitchen sink for the past 2-3 years. You’ll want to start by asking your lender or requestor what documents will suffice. Some of the ways listed here are the most common documents you’ll need to provide.
Tax Returns
Your tax returns will show how much you earned in a given year. While this will show your gross income, lenders will look at your adjusted gross income.
That’s your gross income minus all of your deductions, including business deductions. Self-employed people will rightly take as many deductions as possible to lower their tax liability.
That will put you at a disadvantage because your income will appear much lower than it really is.
Bank Statements
Bank statements are used to give people an accurate sense of your income and expenses. Ideally, you want to show that you have plenty of money available at the end of each month and save it or invest it.
Some people want to see the bank statements from the last month, last quarter, or last 6 months.
Profit and Loss Statements
A profit and loss statement is another way to show your business cash flow. It’s the information contained in your bank statements but organized into spending categories.
What Is a 1099 Pay Stub?
A 1099 pay stub refers to the 1099-MISC form that is used by businesses at the end of each year. These forms are sent to contractors that make more than $600 a year from a business.
Some businesses send these out while others don’t. Not only that, but they’re also sent out once a year.
What you can do is create your own pay stub using a pay stub template. That will show the gross income received and the taxes withheld.
They can be a good guideline for you to make sure you’re saving enough for your taxes and estimated payments.
Proving Your Income When Self-Employed
Self-employment is a total joy for millions of Americans. Yet, it’s easily misunderstood because you don’t fit in a nice neat box when you need to prove your income.
You do need to know what your lender needs and get the forms together, such as a 1099 pay stub. It always helps to stay on top of your finances and keep them organized.
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