What is Sample Letter Explaining Source Of Funds?
A sample letter explaining the source of funds is a formal document that clarifies where your money comes from. Financial institutions, government agencies, or legal entities often request this letter to verify that your funds were obtained legally. It’s commonly needed for large transactions, visa applications, or business investments.
The letter should include:
- Your personal or business details
- The exact amount of funds in question
- A clear breakdown of how the money was acquired
- Supporting documents (attached or referenced)
- Your signature and contact information
Why It Matters
Financial institutions operate under strict anti-money laundering (AML) regulations. Without proper documentation, your legitimate funds could be frozen or questioned. A well-prepared letter helps:
- Speed up approval processes for loans or accounts
- Prevent unnecessary delays in large transactions
- Build credibility with banks and government agencies
- Comply with international financial regulations
How to Use or Apply Sample Letter Explaining Source Of Funds
When submitting your letter, follow these steps for best results:
Gather Supporting Documents
Collect bank statements, tax returns, pay stubs, or contracts that verify your claims. The more evidence you provide, the stronger your case becomes.
Use Clear Language
Avoid financial jargon unless necessary. Write in simple terms that anyone can understand, even if they’re not financial experts.
Submit Through Proper Channels
Some institutions require physical copies with wet signatures, while others accept digital submissions. Always verify the preferred method before sending.
Common Mistakes to Avoid
- Vague descriptions: “Savings from work” isn’t as convincing as “Accumulated from my salary as Marketing Manager at ABC Company from January 2018 to present.”
- Missing details: Forgetting to include dates, exact amounts, or your full legal name can cause unnecessary back-and-forth.
- Inconsistent information: Ensure all numbers match your supporting documents exactly.
- Poor formatting: Use a professional letter format with proper headings and spacing.
5 Example Letters
Example 1: Personal Savings Explanation
[Your Name]
[Your Address]
[City, State, ZIP Code]
[Date]
To Whom It May Concern,
I am writing to explain the source of funds totaling $45,000 currently held in my savings account at [Bank Name] (account ending in 1234). These funds represent my personal savings accumulated over the past seven years through legitimate means.
From 2016 to present, I have been employed full-time as a Senior Software Engineer at Tech Solutions Inc., earning an annual salary of $85,000 before taxes. My monthly take-home pay averages $5,200 after deductions. I have consistently saved approximately $1,500 per month, which accounts for the current balance.
Attached please find:
- My last three years of tax returns (2019-2021)
- Six months of pay stubs from Tech Solutions Inc.
- Bank statements showing the gradual accumulation of funds
Should you require any additional information, please contact me at [Your Phone Number] or [Your Email].
Sincerely,
[Your Signature]
[Your Printed Name]
Example 2: Inheritance Funds Explanation
[Your Name]
[Your Address]
[City, State, ZIP Code]
[Date]
Subject: Explanation of $120,000 Inheritance Funds
Dear [Recipient’s Name],
This letter serves to explain the recent deposit of $120,000 into my checking account (account number ending 5678) at [Bank Name]. These funds were received as an inheritance from my late father’s estate.
My father, [Father’s Full Name], passed away on [Date]. According to his will, I was named as a beneficiary to receive a portion of his liquid assets. The probate process was completed on [Date] under case number [Case Number] in [County Name] County Court.
The $120,000 represents my share after:
- Payment of all estate taxes and debts
- Distribution to other named beneficiaries
- Final settlement approved by the probate court
I have attached the following documents for your records:
- Certified copy of the death certificate
- Final probate court order
- Executor’s letter of distribution
- Bank transfer confirmation from estate account
Please don’t hesitate to contact me if you need further clarification regarding these funds.
Best regards,
[Your Signature]
[Your Printed Name]
Example 3: Business Sale Proceeds Explanation
[Your Name]
[Your Business Name]
[Business Address]
[City, State, ZIP Code]
[Date]
To: Compliance Department
[Bank Name]
[Bank Address]
Subject: Source of Funds – Business Sale Proceeds
Dear Sir/Madam,
I am writing to provide documentation regarding the $350,000 deposited into my business account ([Account Number]) on [Date]. These funds represent the proceeds from the sale of my previous business venture.
From 2010-2021, I owned and operated [Previous Business Name], a retail clothing store located at [Previous Business Address]. On [Sale Date], I sold the business to [Buyer’s Name] for a total consideration of $400,000. After paying:
- Business sale commission (6%): $24,000
- Outstanding vendor invoices: $16,000
- Final tax obligations: $10,000
The net proceeds of $350,000 were transferred to my account as reflected in the attached documents:
- Signed purchase agreement (pages 1-5 attached)
- Closing statement from escrow company
- Final business tax return (Form 1120)
- Bank transfer confirmation
This transaction was properly reported to the IRS, and all applicable taxes have been paid. Please find my contact information below should you require any additional details.
Sincerely,
[Your Signature]
[Your Printed Name]
[Your Phone Number]
[Your Email]
Example 4: Gifted Funds Explanation
[Your Name]
[Your Address]
[City, State, ZIP Code]
[Date]
Subject: Explanation of $25,000 Gifted Funds
Dear [Recipient’s Name],
This letter explains the source of $25,000 recently deposited into my savings account at [Bank Name] (account ending 9012). These funds were a gift from my parents, [Parent 1 Name] and [Parent 2 Name], to assist with my home down payment.
On [Date], my parents transferred the funds directly from their joint account at [Parent’s Bank Name] (account ending 3456). This gift falls within the annual IRS gift tax exclusion limit and does not require any tax filing on their part.
Attached you will find:
- Gift letter signed by both parents
- Copy of the wire transfer confirmation
- My parents’ bank statement showing the outgoing transfer
- My bank statement showing the incoming deposit
Both my parents are retired with substantial savings from their careers as [Parent 1 Profession] and [Parent 2 Profession]. The gifted amount represents a small portion of their liquid assets.
Please contact me if you need any additional information regarding this transaction.
Best regards,
[Your Signature]
[Your Printed Name]
Example 5: Investment Proceeds Explanation
[Your Name]
[Your Address]
[City, State, ZIP Code]
[Date]
To Whom It May Concern,
I am writing to explain the source of $82,500 deposited into my brokerage account (number ending 7890) on [Date]. These funds represent proceeds from the sale of stock investments.
In 2015, I purchased 1,000 shares of XYZ Corporation at $25 per share ($25,000 total investment). After holding these shares for six years, I sold them on [Sale Date] at $107.50 per share, generating $107,500 in gross proceeds. After accounting for:
- Original investment: $25,000
- Long-term capital gains tax (15%): $12,375
- Brokerage fees: $125
The net proceeds deposited to my account totaled $82,500. This transaction was reported to the IRS on Form 1099-B, which I have attached along with:
- Original purchase confirmation
- Sale confirmation statement
- Account statement showing the deposit
All applicable taxes have been paid, and this represents a legitimate investment gain. Should you require any further documentation, please don’t hesitate to contact me.
Sincerely,
[Your Signature]
[Your Printed Name]
Conclusion and Tips
Crafting a strong source of funds letter requires attention to detail and complete transparency. Always:
- Use official letterhead when possible
- Reference specific amounts and dates
- Attach supporting documents
- Keep a copy for your records
- Follow up if you don’t receive confirmation
For more letter templates and writing guidance, visit Letter Sample GG, a valuable resource for professional correspondence.
FAQs About Sample Letter Explaining Source Of Funds
How detailed should the letter be?
Include enough detail to answer potential questions before they’re asked. If you received money from a job, specify your position, employer, and time period. For investments, note purchase dates and amounts.
Is notarization required?
Most institutions don’t require notarization, but some may request it for large amounts. Always check with the requesting party first.
Can I use a template?
Templates are helpful starting points, but always personalize the details. Generic letters often raise more questions than they answer.
How far back should documentation go?
Typically 3-6 months of statements suffice, but for large sums or complex situations, be prepared to provide several years’ worth of documentation.
What if I can’t prove the source?
Consult a financial advisor or attorney immediately. Unexplained funds may be frozen or reported to regulatory authorities.