How self-employed workers can prove lost income after an accident
When a traditional employee gets injured and misses work, proving lost income is simple, whether they’re pursuing a lawsuit or workers compensation. Pay stubs and payroll records can show exactly how much money they’ve lost or will lose during the time they’re expected to be out of work. For self-employed individuals, the process is more complicated.
For example, imagine a self-employed consultant suffers a serious injury due to medical malpractice. After additional procedures and months of recovery, they’re still unable to meet with clients or take on new projects. They can file a medical malpractice lawsuit, but proving their financial losses requires a different type of documentation.
Whether you’re a freelancer, contractor, consultant, or independent entrepreneur, here are several ways to prove lost income after an injury.
Use previous tax returns to establish income history
Tax returns are a primary method for proving income in the self-employed world. Just a couple of years of tax returns can establish your normal earnings before your injury occurred. Tax returns also demonstrate patterns of growth, seasonal fluctuations, and average annual earnings. Since they’re official financial documents, they usually carry significant weight.
Profit and loss statements
Profit and loss statements can provide a detailed look at business performance. These records show how much revenue your business generated before you were hurt and how your income changed while you were recovering. Comparing financial statements from before and after your injury is one of the best ways to prove the actual impact of your injury.
This is why it’s essential to maintain accurate bookkeeping all year round and not put it off until later. If you become injured, you’ll need that documentation at a moment’s notice to pursue financial compensation.
Invoices and billing records
While invoices don’t exactly prove income, it can provide proof of completed work and expected payments. Invoices for canceled projects can show how much income you’ve lost as a direct result of your injury. If clients didn’t pay you or canceled work because you couldn’t hold up your end of the contract, your invoices can be used to support your losses.
Billing records can also help to establish your typical workload and show how much business activity you had before you were hurt. The more detailed your records are, the easier it is to prove how your injury has impacted your income.
Contracts and agreements
Client contracts can show expected future earnings that got disrupted by your injury. Many self-employed individuals include project timelines, deliverables, and compensation in their contracts. If an injury prevents you from fulfilling your agreement, the contract can be used to prove what you would have earned had you not been injured. Contracts are especially helpful when calculating losses from long-term projects.
Bank records
Your business bank statements can be helpful in supporting lost earnings claims. Your statements will show all deposits and transfers that can be used to verify business revenue and show changes in cash flow after your injury. If you haven’t already separated your business and personal accounts, don’t wait any longer. When you need to access your bank records for legal purposes – especially after an injury – it will be much easier when your business account is separate.
Canceled appointments
Some financial losses come in the form of lost opportunities that never turned into formal contracts. When you’re injured, potential clients will look for someone else to provide the same services, and you won’t be able to accept referrals. Any scheduled consultations you have will need to be canceled. This makes your appointment calendar and client communications helpful in proving how much future income you’ve lost because of your injury. While the numbers won’t be exact if you never worked out a contract, your losses can be estimated based on past client work.
Productivity loss
Some financial losses happen because you can’t keep up your normal pace and have to reduce your workload. For example, if you’re dealing with chronic pain or cognitive issues, you might not be able to work at full capacity. That’s a valid way to show lost income. Keep detailed records that show reduced billable hours and fewer completed projects after you return to work to demonstrate how your injury is affecting your income.
Tidy records make a difference
Compared to employees, self-employed individuals need more documentation to prove lost income after an injury. If you’re self-employed, your losses won’t be reflected in a single paycheck. You’ll need to rely on multiple forms of documentation that show how your business performed before and after the injury. By maintaining accurate financial records and tracking all lost opportunities, your financial losses following an injury will be easier to prove.
