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How can you show proof of income if you are self-employed?

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Quick Answer

Bankrate recommends that self-employed workers use tax returns and other verifiable documentation to show proof of income. Many freelance contractors and small business owners don't receive traditional pay stubs. In high-risk lending scenarios, such as mortgage financing, federal tax returns can offer an accurate breakdown of yearly income and help creditors determine an applicant's financial capacity to cover loan payments, according to The New York Times.

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How can you show proof of income if you are self-employed?
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Individuals applying for credit should be aware that reporting business expenses on tax returns to generate a lower net income may hinder approval in some cases, according to Bankrate. While a lower net income reduces personal tax liability, lenders often view higher earnings as stronger proof of repayment potential.

Business News Daily advises self-employed workers to back up an income portfolio with a detailed profit-and-loss statement. These professional statements help verify income by balancing revenue, loss and expenses to calculate a total profit amount. Profit-and-loss statements that show major declines from year to year illustrate instability, so lenders may average annual income from several years, resulting in a lower value, Bankrate states.

When renting an apartment, landlords may request simpler forms of verification, such as monthly bank statements and credit checks, according to About.com. Credit checks provide payment history and income-to-debt ratio comparisons, demonstrating whether or not applicants are likely to have adequate funds to afford an additional financial obligation.

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