For a 1099 employee, what is essential to estimate qualifying income accurately?

To accurately estimate qualifying income for a 1099 employee, averaging the last two years' tax returns is essential because it reflects a more stable and holistic view of the individual’s income over time. This approach accounts for fluctuations and variations in income that can occur from year to year, which is particularly relevant for independent contractors whose earnings may not be consistent annually.

Using information from two years provides a better representation of earnings, especially if the individual has experienced increased or decreased income in the current year compared to previous years. This historical perspective enables lenders to evaluate the consistent earning potential of the individual rather than relying solely on the income from a single year, which might be an anomaly, or current income that may not be sustainable in the future.

This method accounts for the variability that can occur with 1099 employees since they often engage in project-based work, which can lead to fluctuations in earnings. By averaging the past two years, it ensures that the evaluation of income is grounded in actual historical performance rather than a snapshot that may not fully capture the person's financial situation.