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How Can Freelancers Show Proof of Income? 21 September, 2021   

More people all over the world are doing freelance work than ever before. Being a freelancer has its upsides and downsides.


One of the downsides of being a freelancer is not having an employer whom you can quote whenever you need to show proof of employment or income. You often require proof of income to access certain services, such as renting a house or getting a loan.


Many freelancers receive payment informally, which can present a challenge for showing proof of income. The following are several ways through which freelancers can show proof of income:



Bank Statements


You will probably ask your clients to make direct deposits into your bank statements, even as a freelancer. Therefore, your bank statements are an excellent way for you to show proof of income as a freelancer.


Whenever you have to accept payment, you should choose a method where you will have a record of the transaction. Wire transfers, electronic funds transfers, and bank deposits are great because they will always have a history of any transaction in or out of your account.


The bank statements will be a worthy proof of income; hence you should safely store bank statements as old as five years for good measure.


Income Taxes


Everyone has to pay taxes, including freelancers. Your income tax filings should be worthy statements to show proof of income as they list each cent you make and all your expenses during the year.


As an employee, your taxes would be outlined in your paystub. You can use a paystub generator whenever you receive payment from a client. It will outline all the various deductions made from your pay.


However, your tax returns should function as viable statements to prove how much you make in a year or quarter. Using a professional tax service will be excellent to ensure your tax records are immaculate.


Invoices


When you offer your services as a freelancer, and it is time to request payment from your clients, you will probably send them an invoice. The invoices, when paid, are a great source of proof of income whenever you have to present one.


An invoice will detail every job you have done plus the price you quoted for the job. You should have all you need to prove your income for specific periods with a substantial invoice history.


Therefore, always make a copy of the invoice you send to clients. Securely store them as they will come in handy when you need to show proof of income.


Form an LLC for Your Freelance Work


Many freelance workers offer their services as individuals and not as companies. However, there are significant benefits to offering your services as an LLC for your freelance work.


One reason is that it allows you to have a business bank account and offer your services as a limited liability entity. You can keep better track of your business income, expenses and claim various tax deductions.


You can also benefit by separating your business and personal expenses. Offering your services as a business guarantees payment and will ensure official payment records that you can use for proof of income.

Bank Accounts


What you have in your bank account is considered to be an asset. Though the interest may be too low to live on, you can use it as proof of income as a freelancer if you have enough in your bank account.


In this case, a bank account means anywhere you keep your money for safe storage and can receive funds in it regularly. As a freelancer, you will probably do a lot of business online, which means you will typically use online payment platforms where you can store your money.


Accounts on platforms like PayPal, Skrill, Stripe, or any platform from giant tech companies like Amazon Pay, Google Pay, and Apple Pay could function as bank accounts. You could present the accounts as proof of income if you regularly use them.


Your bank statements should show the deposits coming into your account, which is enough evidence to prove that you have an income. However, the funds have to be deposited regularly or be large enough to warrant significant expenditure over time.


Even though you have the bank statements, you should know that proving your income is a matter of providing documentary evidence in addition to a verbal explanation of the flow of money in and out of your bank accounts.


Receipts and Invoices


Whenever you offer a client service or make a sale, you will have to send an invoice or give them a receipt. They are documents that prove you offered someone something of value for which they agree to pay you in turn. Therefore, they make for excellent sources of proof of income but should come secondary to actual payments.


You need your receipts to help you file your taxes, but you can also use them to show your expenditure. The point is that they can put a dollar amount on your payments which is what most people or organizations asking for proof of income need.


You will need to keep your receipts in excellent condition to use them as proof of income. Some places will require you to show them receipts and invoices going back over several years to prove you regularly earn a particular level of income.


 Be wary that some organizations and people may deny receipts as proof of income. Therefore, try and exhaust other sources before turning to receipts and invoices for proof of payment.


Profit and Loss Statements


If you offer your freelance services as a sole proprietorship, partnership, or LLC, you could use profit and loss statements as proof of income. The income statement is also called the profit and loss statement.


Even though you may be earning an income, if you are not making a profit, you will be unable to pay your expenses. Therefore, it is not just about receiving payment for services rendered or sales made; you have to show that your business makes money, of which cash flow or actual payment is the main element.


Your accountant will be beneficial when preparing profit and loss statements to present as proof of income. Using various software or online platforms to keep track of your business expenses is an excellent idea as all you would have to do is access the dates and generate your own profit and loss statements. If you are self-employed, profit and loss statements are one of the best ways to show proof of income.  


Contracts and Agreements


If all else fails, you could use the contracts or agreements you sign with clients to whom you provide your services. There will typically be a number quoted in these documents and can hence serve as proof of income.


A contract will prove that you agreed with an individual or organization to provide them with services for a particular fee. If you cannot verify the reception of the payment, proof of the job might be enough to show as proof of income in some cases.


If you entered into an official agreement, chances are you received payment for services offered or goods bought. If you did not, you could get a lawyer and take your client to court. If there is documented proof, chances are you will win the case and receive payment.  


Contracts going back several years should be enough to ascertain the regularity of work and income.



 


To conclude, showing proof of income as a freelancer could be an issue. As you can see, you need to have the necessary records to show the proof. Even then, it might not be enough. The above are several of the ways you can showcase your income as a freelancer. It is often a matter of agreement between you and whoever needs the proof.

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