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Detailed Answer

Short summary: If you are self-employed and you miss work because of an accident, you can claim lost wages (or lost business income). To succeed you must show what you normally earned, how the accident reduced that earning, and the connection between the accident and the loss. Use contemporaneous business records, tax returns, bank statements, invoices, client contracts, and witness or expert support to prove the amount and the cause of the loss.

What counts as lost wages when you are self-employed?

For a self-employed person, “lost wages” often means lost net income or lost profits (what you would have taken home after ordinary business expenses), but in some cases you may be entitled to recover a reasonable value for the personal labor you could not provide. The precise measure depends on whether you operate as a sole proprietor, LLC, or corporation and on what South Dakota insurance and courts consider compensable.

Overall proof strategy

1. Establish baseline income: show your typical earnings before the accident (past tax returns, profit & loss statements, 1099s, bank deposits).
2. Show the income after the accident: demonstrate the dip in revenue and link it to the injury (cancelled jobs, missed appointments, reduced output).
3. Document mitigation: show efforts you made to reduce the loss (hiring temporary help, rescheduling clients, subcontracting).
4. Support the link between injury and lost income: medical records, doctor’s notes restricting work, client emails canceling work because you were unavailable.
5. Prepare a clear calculation: show math step-by-step and produce a summary spreadsheet or exhibit an accountant prepares.

What documents and evidence are most persuasive?

• Income records: past 2–3 years of federal tax returns (Schedule C, K-1s, corporate returns if applicable) to show typical earnings and seasonality.
• Profit & loss (P&L) statements and balance sheets (QuickBooks, Xero, or handwritten ledgers).
• Bank statements and merchant processor reports (Square, Stripe, PayPal) that show deposits tied to sales.
• Client contracts, invoices, purchase orders, and delivery receipts showing scheduled work or lost contracts.
• Appointment logs, calendars, email threads, text messages, or voicemail records that show missed appointments or cancellations because of your injury.
• Receipts for ordinary business expenses to compute net income (materials, subcontractor costs) and to separate profit from gross receipts.
• Medical records and physician restrictions that show when you were unable to work and why.
• Affidavits from clients, vendors, or employees that corroborate lost jobs, cancellations, or changes in workflow.
• Evidence of mitigation: invoices for temporary help, receipts for outsourcing, or proof you tried to perform restricted tasks remotely.
• Expert reports or a forensic accountant’s analysis for complex or disputed claims.

How to calculate lost income—simple approaches

There are two common practical ways to calculate lost income:

1. Net profit (after expenses) method: Use past tax returns or P&L statements to determine an average net monthly profit, then multiply by the number of months you could not work. Subtract any income you actually received during that period. This method captures what you would have kept as owner income.
2. Value of personal labor method: If your business’s net profit would have stayed similar but you personally perform billable labor, calculate your usual hourly or daily billing rate times the hours/days you could not work. This is common for freelancers, consultants, or tradespeople who charge by the hour or day.

Combine methods if appropriate (e.g., lost personal labor plus additional overhead/costs you still had to pay).

How to prove future lost earnings

If the injury causes permanent or long-term loss of earning capacity, you need additional proof: expert vocational evaluations, a history of earnings, future earnings projections, and evidence that the injury prevents you from returning to prior work. For future losses, courts and insurers want conservative, well-documented projections.

Common problems and how to avoid them

• Incomplete records: keep contemporaneous business records. Don’t try to reconstruct everything from memory.
• Mingling personal and business funds: maintain separate business accounts to make losses clear.
• Failing to show causation: link missed income directly to the accident with emails, client statements, and medical restrictions.
• Not mitigating losses: insurers and courts reduce recoveries if you fail to reasonably try to limit losses (e.g., by hiring temp help or rescheduling clients).

Practical steps to take right after the accident

1. Seek medical care and get written work restrictions.
2. Notify clients and save all communications about cancellations or delays.
3. Preserve all financial records, invoices, contracts, bank and merchant statements, and bookkeeping files for the relevant periods.
4. Create a written log that explains, day-by-day or week-by-week, how the injury affected your ability to do specific tasks and win work.
5. Contact an accountant or bookkeeper to prepare a loss calculation or to verify your records.
6. Talk to an attorney experienced in personal injury or insurance claims before signing any release or settlement offer.

Insurance claims and settlement tips

When dealing with insurers:

• Send a prompt but careful demand with a clear summary of your losses and attaching supporting documents.
• Expect the insurer to scrutinize your bookkeeping and tax returns. Anticipate requests for three years of tax returns and year-to-date profit & loss reports.
• Do not sign broad releases without making sure they cover future and ongoing losses.
• Consider an attorney if the insurer disputes your numbers, questions causation, or if losses are large or ongoing.

Typical evidence package checklist

• 3 years of federal tax returns (personal and business) and the most recent year-to-date P&L.
• Bank and merchant statements covering the pre-accident baseline and the loss period.
• Invoices, contracts, and emails showing scheduled work or revenue streams lost.
• Detailed lost-income spreadsheet showing method, calculations, and sources for each line item.
• Medical records and employer/physician statements showing work restrictions.
• Affidavits from clients, subcontractors, or employees corroborating cancellations or lost opportunities.

When to get professional help

Hire a forensic accountant if your business finances are complex, if income fluctuates, or if the insurer disputes causation or amount. Hire a lawyer if the insurer undervalues your claim, if the other party contests liability, or if the losses include long-term loss of earning capacity. An attorney can arrange experts and preserve your legal rights.

Resources and where to learn more

• South Dakota Codified Laws, codified laws and statutes: https://sdlegislature.gov/Statutes/Codified_Laws
• South Dakota Department of Labor & Regulation for business guidance and tax links: https://dlr.sd.gov/

Helpful Hints

• Keep separate bank accounts for business and personal use to make damage calculations easier and more credible.
• Keep contemporaneous notes (digital or paper) explaining how each missed job or client contact ties to your injury.
• Scan and back up all invoices, contracts, and communications immediately—don’t rely on memory.
• Ask your treating doctor for a written work-capacity note that states dates and limits; insurers rely heavily on medical documentation.
• When estimating lost earnings, be conservative and transparent with your method—neutral judges and insurers prefer reasonable, documented analyses over exaggerated claims.
• If you use an accountant, get a signed statement or affidavit describing the methodology used to compute the loss.
• Do not sign any settlement or release until you understand whether it covers future losses, and consider getting legal advice before signing.

Disclaimer: This article provides general information about proving lost wages as a self‑employed person in South Dakota. It is not legal advice and does not create an attorney‑client relationship. For advice about your particular situation, consult a licensed attorney who practices in South Dakota.