A growing number of people are opting to be self-employed rather than working for a business. The self-employment designation applies to freelance workers and independent contractors.
In fact, there are over 16 million self-employed workers in the United States alone. This number continues to rise as technological advancements lead to more self-employment opportunities. You can easily live on the East Coast and do freelance work for a client in California.
One of the few downsides to self-employment is that the administrative burden is placed on you. For example, the requirement to show proof of income falls on you instead of a Human Resources or Accounting department. Read on to learn how to show proof of income when you are self-employed.
Income vs. Revenue
A common mistake is for self-employed workers to mistake gross income for revenue. Income is the money left over after you subtract all expenses incurred by the business.
On the other hand, revenue is sales receipts only. You do not want to report sales receipts as your income. This mistake leads to you paying more in federal and state taxes.
You still need to record revenue in order to calculate income. The most common way to do this is by creating invoices for each business transaction.
It is critical to record the date of each invoice for tax or loan purposes. Also, you should record the customer and amount of the business transaction.
Bank statements are a great way to calculate income. For starters, they record the date and amount of each deposit into your business bank account.
Also, bank statements collect data on expenses as well. If you keep all business expenses on one account, it will be easier to calculate income.
Use Accounting Software
There are many software programs that help the self-employed track income. These software applications are easy to use and categorize expenses for you.
This is useful if you are seeking to reduce business expenses and increase your profit margin. Accounting software will also produce profit and loss statements for you.
Use a Pay Stub Generator
Just because your job is not conventional does not mean you cannot use common business tools. Many freelancers opt to use a PayStubCreator to track incoming cash flow.
Pay stubs are a great way to record revenue on a set interval. You can use a pay stub generator to track pay on a weekly, biweekly, or monthly basis.
In general, pay stubs are accepted as proof of income. You can provide pay stubs to the Internal Revenue Service (IRS) or any lender.
A Recap of How to Show Proof of Income
Just because you are self-employed does not waive the requirement to demonstrate cash inflow. If you are applying for a loan or filing taxes, a demonstration of income will be required.
Using accounting software or a pay stub generator is certain to get the job done. If you enjoyed this article about how to show proof of income, check out our blog for more great content.