Short answer: You prove lost wages by building a clear, contemporaneous record of your normal earnings and the reduction caused by the accident. For self-employed people that means combining tax records, business records (invoices, ledgers, bank deposits), client communications, and, when needed, expert analysis (forensic accountant or vocational expert). This article explains step-by-step what evidence to collect, how damages are typically calculated, how to present the claim to insurers or a court, and special considerations under New Mexico practice. This is educational information only and not legal advice.

Detailed Answer

1) Understand what “lost wages” means for the self-employed

For an employee, lost wages usually equal the pay you would have earned during recovery. For the self-employed, courts and insurers look to the income you actually earned (net profit), the income you reasonably would have earned but for the injury, and any mitigation you performed. That usually means calculating lost net business income rather than gross sales.

2) Build the core documentation

Collect documents that show both your historic earnings and the earnings during your injury period. Key items include:

• Tax returns (last 2–3 years): Form 1040 and Schedule C (or returns for your business entity). These show baseline income and are frequently relied on by insurers and courts.
• Profit & loss statements and balance sheets for the relevant periods — preferably prepared contemporaneously or produced from your accounting system (QuickBooks, Xero, etc.).
• Invoices, receipts, and signed contracts showing fees you billed and work you would have done.
• Bank statements and deposit records that show client payments and business deposits.
• Accounts receivable ledgers showing invoices outstanding and payments lost because you could not perform work.
• Client emails, job schedules, calendars, project timelines, and communications that confirm cancelled or delayed jobs because of your injury.
• Time records: logs showing hours you would have worked (project timelines, subcontractor schedules, appointment books).
• Documentation of mitigation and replacement income: records if you subcontracted work, hired help, or otherwise tried to reduce losses.

3) Calculate lost earnings correctly

Common approaches:

• Historical average method — compute monthly or weekly average income from prior tax years (seasonally adjusted if needed), then measure the shortfall in the injury period.
• Projective method — if your business had predictable growth, an expert may project lost future earnings based on past trends, contracts, and market evidence.
• Net vs. gross — focus on net profit (after ordinary business expenses) if you’re claiming lost personal earnings. If you personally paid yourself a salary through the business, document that as well.

Example (hypothetical): A freelance graphic designer averaged $3,200 per month net over the prior 12 months. After an accident she worked only sporadically and earned $400 per month for two months. Her lost earnings for those two months would be (3,200 − 400) × 2 = $5,600. If she also lost a long-term contract, an expert may help project additional future losses.

4) Use experts when appropriate

Insurers and courts often expect evidence from a qualified professional when claims involve complex accounting or projected future losses. Common expert witnesses:

• Forensic or litigation accountants — reconstruct business income, adjust for one-time items, remove nonrecurring gains, and prepare demonstrative calculations.
• Vocational experts — evaluate how injuries affect your ability to work and the reasonable timeframe to return to pre-accident earnings.
• Industry experts — for specialized trades or businesses, an industry expert can show what a reasonably prudent business would have earned or how a contract loss affects future revenues.

5) Prepare for insurer review and litigation

Insurance adjusters will scrutinize inconsistencies. Avoid presenting hindsight speculation without documentation. Steps to follow:

1. Provide contemporaneous records first (invoices, bank deposits, tax returns).
2. Explain and document any income dips that are unrelated to the accident (seasonality, preexisting business decline, new competitors).
3. Document steps you took to reduce losses (finding temporary help, subcontracting, rescheduling projects).
4. Keep a daily log during recovery of lost work opportunities and efforts to recover business.

6) Tax implications and net earnings

Lost business profits and lost personal earnings may have different tax treatments. Save documentation that shows whether business expenses continued during the recovery (rent, utilities, subscriptions) and whether you paid employees or subcontractors. Discuss tax consequences with an accountant because net figures you claim in a civil recovery may differ from tax calculations.

7) Workers’ compensation vs. third-party claim

If the accident occurred at work and your business has workers’ compensation coverage or you are covered as an employee of your own entity, a workers’ compensation claim may apply. New Mexico’s Workers’ Compensation Administration explains how wage replacement works for covered workers and what records you’ll submit: workerscomp.nm.gov. For third-party claims (someone else caused the accident), you pursue lost earnings as part of a tort claim against the at-fault party or their insurer.

8) Statute of limitations and timelines

New Mexico has time limits for filing lawsuits. Missing a filing deadline can bar your claim. For up-to-date statutory citations and deadlines, consult New Mexico statutory resources: New Mexico Legislature: Statutes and Constitution and the official code repository: nmonesource.com. If your case involves workers’ compensation, follow the filing deadlines and procedures found at the Workers’ Compensation Administration site above.

9) Practical courtroom and negotiation tips

• Summarize your lost-wages calculation clearly in a one- or two-page exhibit that links each dollar lost to a supporting document.
• Keep business records organized by date and type (invoices, deposits, expenses, client communications).
• Be prepared to explain ordinary fluctuations in your income and why the accident caused the shortfall.
• Consider an early accountant review to test your methodology before submitting to the insurer or filing suit.

Helpful Hints

• Start preserving evidence immediately after the accident: save emails, invoices, calls, and calendar entries.
• Keep a daily recovery log showing lost appointments and time off work.
• Scan or back up all paper records to avoid loss or later disputes about authenticity.
• Separate personal and business finances—this makes it easier to prove income loss.
• If you work seasonally, compare the same period in prior years rather than relying on short-term averages.
• Talk to a forensic accountant early if your business bookkeeping is informal; they can reconstruct income and create credible exhibits.
• If you have any doubt about legal deadlines or strategy, contact an attorney soon. Court filing deadlines can be strict.

Where to look for official New Mexico resources

• New Mexico Legislature — official statutes and legislative resources: https://www.nmlegis.gov/
• New Mexico Compilation Commission (statutes and codes): https://nmonesource.com/
• New Mexico Workers’ Compensation Administration (if injury relates to work): https://workerscomp.nm.gov/
• New Mexico Courts (local rules and filing info): https://nmcourts.gov/