The number of American freelancers is expected to grow from 62.2 million in 2019 to over 90 million in 2028. More and more Americans will have to use a different method than traditional employees to prove their income. Proof of income is important for getting a car, a house, a loan, and tax purposes.
Continue reading to find out how to prove income when you're a freelance developer.
1. Bank Statements
Bank statements are a great way to prove you are bringing in money. They show the deposits and withdrawals made to your bank account. A creditor or lender will be able to see all of your work-related deposits and self-employment expenses.
Bank statements are typically sent once a month, either by mail or email. Freelancers should always have more than one statement on file.
Personal and business activity should be separated to prevent misunderstandings. Create another account dedicated to business matters.
You can go to your bank to obtain copies of statements if you didn't get them or need ones from the past. Online banking usually lets you print out your statements.
2. Profit and Loss Statements
A P&L statement, or income statement, is a summary of a business's profits and costs for a specific period of time. A statement can be made quarterly or annually. Businesses need this information to show they are gaining or losing money.
Freelancers can create their own income statements. There are some credit companies that offer help in making P&L statements.
They should have all business-related expenses, profits, and deposits for the quarter or year as well as dates for your bank statements.
3. Tax Returns
Self-employed individuals, including freelancers, have to file a 1040 form and Schedule C or C-EZ form for tax returns, Medicare, and Social Security tax. Tax returns show a person's annual income, providing proof that they earn money.
However, it's common for self-employed people to fail to record all of their earnings, such as income from small projects. This results in a tax return that doesn't completely represent how much they made that year.
You should keep five or more tax returns. This will not only prove your income, but it could show that your yearly earnings are increasing.
4. Deposit Slips
If you manually deposit your income into your bank account, you'll have to fill out deposit slips. Keep copies of all of them. They show the amount you've deposited, the date, your name, and your account number.
Deposit slips help you and your bank keep track of how much money is being brought into your account and when. It's also proof of income.
Technology has started to replace deposit slips. There are apps that banks have begun using that scan checks and eliminate the need for paper slips. In the future, deposit slips won't be available to use as proof of income.
Freelancers can set up a payroll program for themselves if they only give themselves a percentage of their income. This is similar to a traditional employee with a regular salary. Payroll receipts are a way to show when you're getting paid and the amount you receive.
If you have a business account separate from your personal account, which is recommended, then you can deposit money into your personal account from your business account. This transfer will give you a receipt that's effectively a payroll receipt.
You can even make your own pay stubs at paystubcreator.net.
Document all of your earnings by creating invoices. Customer signatures are proof that you were paid for services and these services were provided. Besides proof of income and services, invoices help freelancers collect their financial information for taxes.
How to Prove Income as a Freelance Developer
All freelancers have an array of options for showing proof of income to creditors and lenders. The upside is that one way may be easier for you than another and you can choose the best way for you. Maybe you'd rather create regular pay stubs instead of putting P&L statements together.
Use this guide to decide on how to prove income as a self-employed developer.
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