Proving Lost Wages When You Are Self-Employed in Massachusetts

Disclaimer: This article is educational only and is not legal advice. For advice tailored to your situation, consult a licensed Massachusetts attorney.

Detailed Answer

If you are self-employed and you lose income because of an accident, you must document and prove that loss to insurers, at mediation, or in court. Massachusetts law allows recovery of lost earnings as economic damages in personal injury claims, but courts and insurers expect reliable, verifiable proof. Below are practical steps and the types of evidence that typically carry weight in Massachusetts claims.

1. Understand what to claim: gross receipts vs. net earnings

As a self-employed person, you usually claim your lost net earnings (profit) rather than gross receipts. Net earnings equal gross income minus ordinary and necessary business expenses. For owner-employees of an S corporation or similar entity, W-2 wages you paid yourself may be relevant too. Be prepared to show how you calculated the figure you claim.

2. Start with primary business records

Primary contemporaneous business records are the best evidence. Collect:

• Tax returns and Schedule C (sole proprietor), S-corp/partnership returns and K-1s, and relevant W-2s or 1099s for the last 2–5 years;
• Profit & loss statements and balance sheets (preferably prepared regularly and contemporaneously);
• Bank statements showing deposits from business operations and payments for business expenses;
• Invoices, contracts, purchase orders, and cancelled checks;
• Accounting software exports (QuickBooks, Xero) and bookkeeping ledgers;
• Client communications (emails, text messages) confirming scheduled work, cancellations, or lost opportunities.

3. Reconstruct earnings if records are incomplete

If an accident destroys records or you did not keep ideal books, reconstruct your income using multiple corroborating sources. Useful reconstruction tools include:

• Bank deposits by client and payment processor reports (PayPal, Stripe, Venmo business records);
• Past tax returns and year-over-year averages to show typical earnings before the accident;
• Client affidavits or written confirmations of lost projects;
• Calendars, project files, drafts, or time logs showing work in progress that was interrupted;
• Third-party records such as supplier invoices, rental records, or platform analytics (e.g., Etsy, Amazon seller reports) that track sales.

4. Use expert help when needed

An accountant or forensic accountant can translate business records into reliable lost-earnings figures and craft a methodology defensible in negotiation or trial. They can adjust for seasonal variation and separate personal draws from business profit. Massachusetts courts accept well-supported economic analyses; make sure the methodology is transparent and based on admissible records. (Do not rely on unsupported estimates or guesswork.)

5. Prove causation and mitigation

You must link the income loss to the accident. Use medical records showing disability dates, communications documenting why you could not work, and client statements about canceled work. Courts and insurers also expect you to show reasonable efforts to mitigate losses—e.g., seeking alternative work, hiring help, or accepting modified duties—so keep records of attempts to make up income.

6. Document future lost earnings, if applicable

If the injury reduces your capacity to earn in the future, you can claim future lost earnings. Proving future loss requires medical evidence of disability, a careful earnings projection based on past income and reasonable assumptions, and often an expert economist or accountant to quantify the present value of future losses.

7. Common evidence packages that persuade insurers and courts

• Three most recent years of tax returns and year-to-date returns for the injury year.
• Monthly profit & loss statements for the year before and the year of injury.
• Bank statements and payment processor records matching deposits to invoices.
• Signed client contracts, work orders, and canceled job notices.
• Contemporaneous calendar entries showing scheduled work and missed appointments.
• Medical records showing dates you were unable to work and physician opinions linking incapacity to the accident.
• Affidavits from clients or regular customers confirming lost business.
• Accountant report reconstructing lost earnings and separating personal draws.

8. Timing: statute of limitations and prompt action

For most Massachusetts personal injury claims, the statute of limitations is three years from the injury date under M.G.L. c. 260, § 2A. See the statute for details: M.G.L. c. 260, § 2A. If your claim arises under the Massachusetts workers’ compensation system instead of a tort claim, different rules and procedures in Chapter 152 may apply: M.G.L. c. 152 (Workers’ Compensation). Take timely steps to preserve evidence and notify relevant insurers.

9. Settlement vs. trial presentation

For settlements, package clear, organized documents and a concise damages summary showing how you calculated lost earnings. For trial, prepare witness lists (you, clients, accountant, medical providers), authenticate records, and be ready to admit documents under the business-records exception. Courts will be skeptical of large, unsupported claims, so be conservative, transparent, and well-documented.

Helpful Hints

• Keep contemporaneous records. The best evidence is created at the time of sale, invoicing, or payment.
• Back up digital records regularly and export data from accounting platforms in common formats (PDF, CSV).
• Preserve client communications (emails, messages, contracts) and label them with dates and context.
• Track time spent on specific jobs, including time lost due to medical appointments or recovery.
• Separate personal and business finances. Use a dedicated business account and credit card.
• Document mitigation efforts: job searches, temporary hires, referrals, or reduced-price work taken to offset losses.
• Obtain written statements from major clients confirming canceled or postponed work and lost revenue amounts.
• Keep copies of all medical records and ask treating providers to note work restrictions and durations in their records.
• Talk to an accountant early if your bookkeeping is weak; early reconstruction saves time and improves credibility.
• Consult a Massachusetts personal injury attorney before signing any release from an insurer or settling a claim—settlements often bar future claims for the same loss.

If you want, I can outline a sample evidence checklist tailored to your business type (sole proprietor, S‑Corp owner, gig worker, or independent contractor) and a sample damages worksheet showing how to move from gross receipts to claimed net lost earnings. Remember: consult a licensed Massachusetts attorney to evaluate your specific case.