How to Prove Income
Typically, if you were applying for a loan or needed to verify your income to a healthcare provider or to determine your eligibility for benefits, you would simply provide a copy of your most recent pay stub. However, if you are self-employed or run your own business, proving your income isn't quite that simple, because you don't get pay stubs. However, there are several ways you can prove your income using the financial and business records you have at your disposal.
Using Your Tax Returns
Copy tax returns from your own records.If you've retained copies of your tax returns, you can simply make copies of the requested years to submit to the agency or lender.
- If you have an accountant, or use tax preparation service, you also may be able to get copies of the tax returns you need through them.
- The IRS recommends you keep your tax returns and related records at least three years from the date in which you filed.
- Typically your tax return must show the same first and last name as the name for which you're applying for a loan or benefits. If you've changed your name in the past few years, such as because of a recent marriage or divorce, you may need to provide additional proof of that name change.
Order past tax returns from the IRS.If you don't have copies of your tax returns in your own records, you can order copies from the IRS.
- You can order a transcript for returns from the current year or the past three years by using the "Order a Transcript" tool on the IRS's website, or by calling 800-908-9946. The transcript shows most line items on your return including any forms or schedules you filed that year.
- If you order online or over the phone, you generally can expect to receive your transcripts within 10 days.
- If the agency or lender requires an actual copy of a filed and processed tax return, you must fill out Form 4506, "Request for Copy of Tax Return," and mail it to the appropriate address on the form along with a fee for each tax year you request.
Highlight your income amounts.Once you've collected the correct tax returns, mark the information the agency or lender needs to know so they can find it easily.
- Particularly if you are self-employed, your tax returns will be many pages long. It may be helpful for the agency or lender to mark the items they will need to check to verify your income.
- Keep in mind that if you've maximized your allowable deductions to decrease your taxable income, that resulting net income may not present the best picture for mortgage lenders who are trying to determine whether you have the ability to make monthly mortgage payments. If you're showing a net loss for several years, you might consider using an alternate method to prove your income.
- Typically a landlord or lender will want to see tax returns for the past two years. If you combine your total income across those years and average it out, you'll have your average net revenue. Dividing that same figure by 24 shows your average monthly earnings. Particularly if your income is erratic, this number can be more helpful in proving that you have the income to pay the monthly rent or mortgage payment.
Include other relevant tax documents such as 1099s.Even if you don't have W-2s, 1099s can show the income you received from various clients or income sources throughout the year.
- These documents also might be helpful to include if you filed a joint tax return but only need your income verified.
- Other tax forms a lender or agency might need to see to verify your income include your Schedule C, which documents profit or loss from a business, and Schedule E, which is used to report other types of income such as rental real estate and royalties.
Using Bank Statements
Order statements from your bank.Typically you can pull up the required statements through your online account, but you may need to take a trip to a branch.
- Depending on the agency or lender asking for your bank statements, you may need to collect statements for several months or even several years.
- Lenders or agencies may request bank statements rather than tax records because it gives them a better picture of your daily cash flow.
Highlight your income amounts.Mark the deposits that you want the agency or lender to include in your income.
- If a deposit's source isn't documented – for example, a client may have paid you in cash, or you may have transferred the income from another account – be prepared to find documentation to prove that the deposit in question is income that should be counted by the lender or agency in verifying your income.
Include an overview page.An index noting the page where each relevant entry appears, as well as a summary of your income each month, will be helpful to the agency or lender that needs to verify your income.
- Keep in mind that if you use one bank account for self-employed business expenses as well as personal expenses, you may have difficulty documenting the transactions to a level acceptable to some lenders or agencies.
Using Contracts or Invoices
Keep your contracts and invoices organized by document type and date.Maintaining organized financial files will enable you to quickly locate the documents you need.
- Find out ahead of time what documents the lender or agency will need to verify your income, and make a list so you can check it off as you pull documents. Then you can create a file to deliver to the lender or agency.
- You might consider working with an accountant or bookkeeper to ensure your files are in order and you're keeping all the financial documents that need to be kept.
Copy the documents for the necessary time period.Once you've found all the documents you need to prove your income, make copies of them and return your originals to your files.
- You also may need to contact your clients to get verification from them regarding contracts or invoices paid.
- If you have a small business, you may need to copy receipts or other sales documents for the time period the lender or agency requested.
Create a revenue statement.A revenue statement draws a neat picture of your income over a given period of time.
- If you own a small business such as a restaurant or shop, you also may need to create a profit and loss statement, which summarizes your revenues, costs, and expenses over the period of time requested by the lender or agency. This statement provides a more accurate picture of your business's profit margin and proves how much income you're actually bringing in.
Draft a reasonable projection of your earnings.Particularly if you're applying for a mortgage or other significant long-term loan, the lender may want to see your projected income for several years into the future.
- Most lenders want to see a projection over the next three years.Although it may be somewhat of a guess, make your projection as reasonable as possible based on the figures you've calculated as averages for past income.
Include any additional documents or licenses if requested.A lender or agency may need additional business documents to prove that your income is legitimate.
- For example, if you work as a general contractor, you typically must have a license issued by your state, city, or county. Your business license can reassure a lender or agency that your business is reputable and above-board.
- Some companies such as mortgage lenders may require letters from companies with which you contract. These letters should be on company letterhead and verify your income and the type of contract you have with that company or individual. Additionally, the client should include the dates you've worked with them and the types of services you provided.
- You also may need a letter from a CPA or accountant to verify the existence and ownership of your business, as well as financial information you provided.
- If you run a small business, you may need to provide corporate certificates or proof of LLC registration. Sole proprietorships may need to provide any DBA forms issued by the state in which the company operates.
- The lender or agency also may require information about your business so they can assess the market and determine how stable your projections are and whether there's enough demand for your product or service to sustain you over a long period of time.
- Most mortgage lenders want to see self-employment income and verification for at least two years. If you haven't been self-employed for that long, or if you previously relied primarily on a day job and did some contract work on the side, you may have difficulty proving your income.
- If you're self-employed and you're asked to provide proof of income for health insurance through the healthcare.gov Marketplace, you must provide bookkeeping records and receipts for all allowable expenses in addition to copies of your tax return and related schedules.
Video: HOW TO PROVE INCOME VERIFICATION WITHOUT CHECK STUBS OR TAX RETURNS DIY VIDEO!
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