For most people, proving their income is not a big issue since companies where they are working provide them with proper guidelines or do that instead of them. However, the expansion of remote workers and freelancers made this part much more complicated since individuals will have to take care of it on their own.
Also, there is a challenge related to how freelancers are earning on the market. Their shifts are flexible, and they are often having differences in weekly and monthly incomes.
Therefore, a good plan is essential for you if you want to keep the accuracy and avoid any potential issues with officials.
This document must provide detailed information about how much money you are earning so that the officials can calculate the tax you have to pay. One of the easiest ways to secure higher transparency and avoid issues is to use a paystub. Here are the main options that you should use to prove your income as a self-employed person.
1. Financial Report
You can create a special document each time when you complete an assignment for a client and get paid. That will make things much easier when it comes to the calculation of taxes and providing accurate data to authorities.
You can create detailed reports that will include all of your activities. Also, the process will be much easier if you track these activities daily and then create weekly and monthly reports. The great thing is that you can use software with automation and keep the evidence about gross income, deductions, net wage, and other details.
The main point of this option is to provide more details about the amount of money you earned, along with expenses and potential losses you faced. You can still hire an accountant even if you are not a registered business. The great thing is that there are some positive changes for freelancers in recent years, and we expect that this area will be regulated even better in the future.
We have to mention that you can create detailed reports even if you are using some popular payment processor that is working on international levels, like Stripe or Pay Pal. It would be a mistake if you don’t provide reports from these platforms.
2. Tax Deductions
This is one of the most efficient options that you can choose. The reason for that is that this document represents a legal paper provided by the officials. However, there is a potential issue since your clients are legally required to send a special form only when they have to pay you more than $600 for some job.
Considering that a lot of freelancers are working on short-term projects, some of them might refuse to provide you with this paper for lower amounts of money. In that case, it won’t cover the full amount of money you received in one year. On the other side, there is a solution to this issue as well, which is providing documents from the bank that can also be proofs of payments.
3. Details From the Bank
As we already mentioned, this can be an excellent alternative in case your client won’t provide you payment proof for lower amounts of money. However, keep in mind that the best solution is to have separate accounts. One for private purposes, and another one where you will keep only money received from your online gigs.
What Is the Purpose?
The main reason why you should deal with this is that you can get the same benefits as people working typical office jobs for various companies. First of all, we all know how complicated the situation with medical care can be, especially in the US. The problem is even bigger for the unemployed. Therefore, you can use some of these options to get the status as an employed person and receive much better conditions for health insurance.
Another advantage is that you will be able to get a loan, mortgage, buy various equipment as a business, and more.
Furthermore, you may receive some other benefits like the ability to get a loan for small businesses. This can be a great way to invest in your work. For example, if you are a designer, you can use these funds to buy a new PC, a special tablet for drawing, and other tools that will help you improve your skills and earn even more money. There is also a chance to find a better deal for a loan to buy a house, lease a vehicle, and more. Also, you can use these documents to provide them to the landlord of the residential where you want to rent an apartment.
Keep in mind that there is no reason to not deliver some details. In case you are having trouble with your client who simply doesn’t provide you with a form that is required for payments over $600 when you haven’t reached that amount yet, you can ask that person to create a detailed form once you reach that point. It doesn’t have to be during the same month, but the requirement is that the wages were delivered in the same year.
Deciding to work without providing any details will be considered as avoiding paying taxes, and that will surely lead to legal issues and penalties. Therefore, it is crucial to be accurate and organized when working as a freelancer. On the other side, you will receive various benefits like tax deductions, improved health insurance, the ability to get a loan for a house or a car, and many other terms that people working in standard jobs are getting.
We understand that this can be quite complicated, especially if you recently started to work as a freelancer. In that matter, you should contact someone with more experience so you can be sure that you are not making some mistakes that could lead to legal issues or that could prevent you from getting the same terms as people working in traditional positions.