Loss of Tax Records Due to Disasters

Recently the IRS issued an updated advisory on the importance of maintaining and safeguarding tax records.  The release was timed to coincide with the start of hurricane season.  While not everyone lives in a hurricane susceptible area,  the record keeping and recovery advice is relevant to all taxpayers.

The IRS recommends that taxpayers create electronic copies of all their important financial documents like bank and investment statements.  Since these documents are now routinely available online in electronic form, this suggestion is becoming easier to follow.  Even if these documents are originally in paper form they can be scanned and saved in electronic form.  And the IRS suggests that keeping them on your computer hard drive is not enough.  It is recommended that you back up the copies to a DVD or flash drive and then keep that back up on some other place away from the computer (for instance a safety deposit box).

Another suggestion is that taxpayers make a room-by-room inventory of their possessions.  Electronic devices come in handy for making this inventory.  Taxpayers can take pictures or videos of their possessions, download the pictures to their hard drive and then back them up to DVD or flash drive, and then store that back up in a secure place.

Another suggestion is relevant to business owners.  If you’re a business owner who uses a third party payroll provider, make sure that the provider has a fiduciary bond in place.  Should the fiduciary be subject to a disaster and not be able to process your payroll (or remit the associated payroll taxes to the IRS) the fiduciary bond will protect the business owner for the default by the payroll provider.

Finally, the IRS has methods for obtaining copies of previously filed tax returns, should you lose those in a disaster and need a copy.

If you have had the unfortunate circumstance of an event that caused you to lose your business and tax related document and want to assess how this might affect your tax situation, schedule your free consultation by calling (480) 888-7111 [or submit a web request here].