Owning a profitable business of your own is a great way to earn a living.
It offers freedom and flexibility.
You get to make all the decisions and decide where to focus your time.
These are just a few perks you can experience from owning your own company, but there is a downside.
When it comes time to prove your income, you might not know how how to do this.
People generally show proof of income by offering pay stubs to the lender or insurance company, but what if you don't have pay stubs?
If you need a way to prove the income you earn from your self-employment, here are four options you have.1. Provide Your Bank Statements
Any time your business makes money, you probably receive it in the form of a check. You then take the checks you receive and put them in the bank.
The same is true for your expenses. Each time you have a bill to pay, you probably write a check or use your company's debit card to pay the bill.
The benefit of using a bank account for your income and expenses is that you have a permanent record of your company's revenues and expenditures.
Your bank account shows all the money that you collect and pay for bills. An easy way to prove how much money you make is by submitting copies of your bank statements to the lender or organization that needs them.
If you're applying for a loan, the lender will want to know that you can afford to repay it. To prove this, show them your bank statements for the last year.
By looking at these documents, the lender will see the positive influx of cash your business generates. They'll also see how much money you spend on bills.
Once the lender evaluates this information, they should have no trouble approving your loan.2. Show Your Previous Tax Returns
A second option you have is showing your previous tax returns. A tax return summarizes all the income and expenses from a business into one document. This document shows financial records for an entire year.
If you give the lender one tax return, they'll see your finances for that year. If you offer two, they'll see a pattern.
Two years of tax returns can prove that you have a steady income coming into your business, and this may be enough for the lender to approve your loan.
The downside to using your tax returns as evidence of income is that they may show a lot of expenses. Every expense you list helps you save money on your taxes but also reduces the income you earned.3. Create Financial Statements for Your Business
Do you currently create financial statements for your business? If not, you should start.
If you use a software program to record your company's financial details, the program might generate statements for you. If you don't use a computer application, you can create your own reports.
Here are two types of financial statements you should consider creating:Income Statement
An income statement is a very common tool that most businesses use and is sometimes called a profit and loss statement.
The purpose of this document is to show the income and expenses for a specified time period (such as a month or a year) and then to show the net income during that time-frame.
To create one, you need to add up all the income earned during the period and place that at the top of the document. Next, add up all the expenses incurred during that same period and place that amount below the income.
Finally, subtract the expenses from the income to reveal your business's net income.
You can do this monthly and yearly and submit the statements to your lender as proof of income.Balance Sheet
A balance sheet doesn't prove your income, but it does show the financial stability of your company on a specific date.
To create a balance sheet, you must add up all your assets. Next, you will need to add up all your debts (also called liabilities). Finally, subtract your liability total from your asset total to reveal the equity you have in the business.
Showing a balance sheet to a lender helps prove that your company is financially stable.
Both of these documents can assist you in proving the money you make through your self-employment. Without a software program, though, creating these documents can be a lot of work.4. Print Your Own Pay Stubs for Proof of Income
One last option to consider is printing pay stubs. Did you know that you can purchase a blank pay stubs template to use to make your own pay stubs?
Did you also know that this is probably the simplest way to prove your income when self-employed?
Using a pay stub generator allows you to have pay stubs to use for proof of income, but that's not all. Using one also provides a simple and effective way to calculate withholdings from your income.
If you do this all year, you will pay your taxes on time and owe less money when you submit your tax return for the year.Learn More About Your Options When Self-Employed
You may not need proof of income right now, but there will come a time when you do. So, you may want to plan ahead.
Printing your pay stubs is just one of many options you have when self-employed, but there are a lot of other helpful tools you can use as well.
Check out our site to learn more about the different tools and options you have when self-employed.