Income
Self-Employment Income: Definition & Example
What Is Self-Employment Income?
Self-employment income is money earned from running your own business or working as an independent contractor, measured as business revenue minus business expenses.
What does self-employment income mean?
Self-employed people include sole proprietors, freelancers, independent contractors, and owners of single-member LLCs. Their income is reported on Schedule C (or a partnership or S corporation return) and is subject to self-employment tax.
Lenders usually average self-employment income over one or two years of tax returns, sometimes with a year-to-date profit-and-loss statement. Landlords are often more flexible and accept tax returns, 1099s, bank statements, or bank-connected income reports.
The challenge is that revenue and personal income are not the same thing. Business deposits may be large, but expenses come out before the owner has money to live on, so reviewers should look at both.
Self-employment income example
A landscaping business owner’s tax return shows $140,000 in revenue and $88,000 in expenses, for $52,000 in net profit. The prior year’s net profit was $47,000. A lender averages the two years and uses $49,500, or $4,125 per month, as qualifying income.
Related terms
- 1099 Income1099 income is money paid to independent contractors, freelancers, and other non-employees, reported on an IRS Form 1099 without income tax withheld by the payer.
- Gig IncomeGig income is money earned from short-term, task-based work, often through apps such as rideshare, delivery, or freelance marketplaces, rather than from a single employer.
- Variable IncomeVariable income is income that changes from pay period to pay period, such as commissions, tips, overtime, bonuses, seasonal work, or freelance earnings.
- Net IncomeNet income is what remains after deductions. For a person, it is take-home pay after taxes and withholdings. For a business, it is profit after all expenses.
- Bank Statement AnalysisBank statement analysis is reviewing a person’s or business’s bank transactions to estimate income, spot recurring expenses, check balances, and flag risks such as overdrafts or unusual deposits.
Self-employment income FAQ
- How do self-employed people prove income for an apartment?
- Common options include tax returns, 1099 forms, profit-and-loss statements, bank statements, a CPA letter, or a bank-connected income report showing deposits over time.
