Income verification for a small business sole proprietor, independent contractor or a freelancer doesn't have to be any more difficult than it is for a person who receives a regular wage or salary. Although a self-employed person can't provide pay stubs like a regular employee, a combination of tax returns, profit and loss statements, bank statements and third-party verification are common alternatives.
Protect individual privacy by asking that everyone black out Social Security numbers on all income verification documents.
Federal Tax Returns and Business Documents
Request federal tax returns and 1099-MISC forms for the previous two or three years. Self-employed sole proprietors must file IRS Form 1040 and Schedule C Profit or Loss from Business, so request and review both. For those not required to file Schedule C, profit and loss statements -- documents that identify annual sales and expenses -- provide the same information.
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Checking and savings account statements can help you determine how well an applicant manages day-to-day finances. Depending on your needs, request statements from the previous 3 to 6 months. Look for things like frequency of deposits, the source of each deposit, average daily balance and overdrafts.
Third Party Verification
Third-party verification is a way to support -- not replace -- other types of documentation. Some people use third party verification to authenticate the existence of the business. For example, you might request 1 to 3 notarized letters from customers specifying the type and dates of service or sales and then cross-reference these with invoices or sales receipts. Another option is to request a notarized verification letter from a Certified Public Accountant that verifies the business's existence and ownership.