How Self-Employed Income Actually Gets Qualified

• Tax Return Lenders typically average your last 2 years of net income from Schedule C, K-1, or corporate returns — then add back non-cash expenses like depreciation, since those don't reduce your real spending power.
• Declining Income If year-over-year income drops more than about 20%, most lenders will use the lower year — or ask for a written explanation before using the average.
• Bank Statement Non-QM programs skip tax returns entirely and qualify you on deposit history instead — a real option if your tax write-offs make your returns look leaner than your actual cash flow.
• Expense Factor Bank statement programs apply a flat expense deduction (often 50% by default) unless a CPA provides a letter supporting a lower, more accurate figure for your business.
• Documentation Tax return method: 2 years of returns plus a YTD profit & loss statement. Bank statement method: 12–24 months of statements, sometimes a CPA letter.