How to verify income for a self-employed tenant
No pay stubs doesn't mean no proof: tax records and bank deposits tell the story.No pay stubs doesn't mean no proof. Self-employed income leaves a trail in tax records and bank deposits.
What to ask for
- IRS tax return transcripts for the last one or two years. A sole proprietor reports business profit or loss on Schedule C (“Profit or Loss from Business”).
- Forms 1099-NEC from clients, which report nonemployee compensation.
- Bank statements for the last several months, showing the business income arriving.
- If the applicant has a business account, its statements as well.
Use tax transcripts instead of copies of returns
A tax return PDF is easy to edit; a transcript comes from the IRS. Applicants can view their tax transcripts in their IRS online account or have them mailed, which the IRS says takes 5 to 10 days. Ask the applicant to download the transcript while you watch, the same way you would a bank statement.
Line the documents up
Self-employed income is uneven, so look at the pattern rather than one month. Deposits over several months should be roughly in line with the yearly income on the tax transcript, and 1099-NEC amounts from clients should be in the same range as the gross receipts the applicant reports.
Check each bank statement the same way as any other: balances that carry forward and deposits inside the statement period.
Be consistent
Decide in advance what self-employed applicants should provide and how you count their income, and apply it to every self-employed applicant the same way.