Income when you are self-employed

When you are on a traditional paycheck, your income is already a number on a document somebody else produced. When you work for yourself, your income has to be established from your own records.

That means the picture a lender sees is the one your tax returns paint. If you have been deducting aggressively — which is legal, and often sensible — the number on your return may be lower than what you actually take home. It is worth knowing that before you apply rather than during.

Lenders generally want to see some history of self-employment, because it demonstrates that the income is likely to continue. How much depends on the program and on your situation.

There are variations for people who were previously employed in the same line of work, and for people who have been self-employed for a long time but recently changed their business structure. These are details, not walls.

Expect to provide more documentation than a salaried borrower. Multiple years of personal tax returns are typical, along with business returns where you have a business entity, and a current profit and loss statement.

There is nothing unusual about any of it. This is a well-worn path with a lot of borrowers on it, and providing the paperwork is not a red flag about your business.

Three things help. Keeping clean, separate business and personal accounts. Knowing in advance which years of returns will be used and what they show. And being upfront about anything unusual — a slow year, a large one-time expense, a change in how you take income.

The practical advice I give most often: start earlier than you think you need to. Gathering business records takes longer than gathering pay stubs, and starting early means the timeline belongs to you rather than to the calendar.