How to Report Self-Employment Income on a Credit Application

Being self-employed offers you flexibility and other advantages. However, if you’re applying for a mortgage, a credit card, or any other kind of credit, reporting your income from self-employment can be harder than it sounds. Take a closer look at how to report self-employment income on a credit application.

How to report self-employment income on a credit application: Key tips

If you work a salaried W-2 job, reporting your income on an application is fairly straightforward. But when you’re self-employed, determining what to put on your application can be difficult. Here’s how to accurately report your income:

What counts as self-employment income

Generally, self-employment income is income from freelance work or from a small business you own. These are common examples:

• Income from your work as an independent contractor, which is common in fields like consulting, graphic design, and software development
• Income from digital marketplaces like rideshare apps, delivery services, or homeshare platforms
• Profits from online content creation or digital storefronts

When you file taxes, self-employment income is generally reported on Schedule C (Profit or Loss From Business). Your Schedule C is attached to your individual 1040 tax form.

Which income number to use (gross vs. net)

When reporting your self-employment income, you should report your net profit, which is your revenue minus business expenses. In most cases, you’ll need to use your net profit before you pay taxes or claim tax credits or deductions.

Here’s an example. Imagine that you run an online store. Last year, your total revenue was $100,000. The total cost of your inventory and other business expenses was $40,000. That means your net profit was $60,000.

How to calculate the income figure to report

Calculating your annual net profit before taxes isn’t usually too challenging. But many credit applications want to know your average monthly income. Mortgage lenders will often ask for your average monthly income over the past two years.

The easiest way to calculate this starts with your tax return:

• Find your gross receipts (income) on line 1 of your Schedule C
• Subtract your total business expenses (line 31) from your gross income
• Add back business-use-of-home and other personal expenses, if the lender allows it
• Divide the number by 12 to get your average monthly income

If you have other income sources, like a part-time W-2 job or investment earnings, you may be able to report these as well.

Documents you may need to verify self-employment income

When it comes to self-employment income, credit applications tend to request different types of proof. The proof required will depend on the lender and the type of work you do, but these are some typical examples:

Tax returns

When verifying self-employment income, credit applications will often ask to see tax returns. That way, if you have 1099 and non-1099 self-employment income, the lender can see it reported in one place.

It’s not unusual for some lenders, especially mortgage lenders, to ask for two years’ worth of personal and business tax returns.

Bank statements

Sometimes, a lender may want to see several months’ worth of bank statements. This gives them a clear idea of your cash flow and income stability.

Profit and loss statements

If you need to show a lender your current finances, you may choose to submit a year-to-date profit and loss (P&L) statement. Even if you haven’t yet filed a tax return, submitting a P&L statement and a balance sheet can illustrate your business’s current performance.

1099 forms

If all of your self-employment income is reported on Form 1099, a lender may only need to see these forms. This may be the easiest method if you’re a full-time rideshare driver or you work as an independent contractor for one or two companies.

Let us help you boost your credit score before you apply

Understanding how to report self-employment income on a credit application is a critical step. However, when a lender reviews your application for credit, your income isn’t the only thing they’re assessing. Even if you have a stable income, a too-low credit score could result in unfavorable loan terms or even outright rejection.

Kikoff is here to help you boost your credit score before submitting an application. Whether you have poor credit or a limited credit history, our credit-builder app works to help you establish a stronger payment history. Our members have increased their credit scores by a collective 80 million points and counting.

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