Self-employed income refers to earnings generated by individuals who work for themselves, such as from businesses, freelance work, or contract work. Ocrolus analyzes this income using tax documents like 1099s or Schedule C forms to assess financial health and income stability. In Encompass, self-employed income is entered into the loan origination system (LOS) to calculate qualifying income for borrowers, often requiring a review of tax returns, profit, and loss statements, and other documentation to ensure accurate income reporting for loan purposes.

Ocrolus generates income calculations for self-employed income for the following business structures:

• Sole Proprietorships
• Income or Loss reported on IRS Form 1040 - Schedule F
• Partnerships
• Limited Liability Companies
• S Corporations
• Corporations

Documents utilized

This table lists the supported self-employed income document types. Any document not listed is not currently used for this purpose. To learn more about the type of documents Ocrolus supports, see the All supported document types section.

Income calculation guidelines

It is recommended to adhere to the following key guidelines while doing income calculation using Ocrolus:

• If any of the tax documents mentioned above are available for the current year, income is generated for both the current and past year. If not, income is generated for the most recent two years from the relevant forms.
• Ocrolus generates an income analysis with one year of tax returns but can use up to two years. Best results are provided when two years of documents are available.
• The Sources panel reflects only the pages of the forms where data was collected for income analysis.
• Users can view the full document as uploaded and grouped by Ocrolus within the classification flow by selecting the View Full Document link.
• All displayed values are directly extracted from the documents, but users can manually edit any values if needed.

Liquidity ratio

For mortgage lenders, the liquidity ratio is computed for self-employed borrowers using 1065, 1120S, or 1120 business tax returns. To know more about the liquidity ratio, see the Liquidy ratio section.