Self-Employed? Here’s How to Get Proof of Income
When applying for a loan, you’ll need to provide proof of income in your application. This can prove tricky if you are self-employed, as you might not always have typical forms of income verification on hand. However, there are other acceptable alternatives that you can present as proof of your income.
Depending on the lender, providing the last two financial years’ tax returns is typically accepted as proof of income. Lenders will be looking for a consistent, steady flow of taxable income.
As with most new businesses in their first year, you might have had initially low profits and expensive outlays: which will impact your borrowing power. If there is a big difference in income between the two financial years, lenders will often rely on the figures from the lower of the two. If this is the case, speak to your broker or accountant about what has been happening in your business – you may have forgotten to report certain ‘off the books’ fees or income, which affects your actual income figures.
Business Bank Statements
If you haven’t already, it’s a good idea to set up a bank account for business purposes only. Not only will this help you keep track on your income and expenses, it serves as proof of your business’ income. Make sure to account for any overlaps in between your personal and business spending. For example, you might be paying for a rental vehicle out of your personal account, but using it for business purposes half of the time: which equals a 50% tax deduction on this expense. Lenders will typically ask for your bank statements from the past three months.
Profit & Loss Statements
Getting a profit & loss statement drawn up by a certified accountant enables you to document your business expenses and income at various regular intervals (usually monthly). This detailed statement can be accepted as proof of income, so long as the figures contained correspond with your business bank statements.
Keep copies of customer invoices, marking each with the date on which you performed your service; payment method; amount received; and date on which you received your customer’s payment. These can serve as supporting documentation on proving your income, and provides more detail than would tax returns or bank statements alone.
Quarterly BAS statements can show lenders your quarterly gross trading income, as well as capital and non-capital purchases. You are usually required to present two to four BAS statements, so your lender can get a more accurate idea of your recent trading history. BAS statements are a great alternative for proof of income if you haven’t yet lodged your tax returns, or your returns aren’t an accurate representation of your current business’ situation.