Can Your Tax and Other Financial Records Survive a Disaster?
It happens to someone every day. If disaster strikes your home or business, will your financial records survive?
You can’t turn on the news during the summer without hearing about the latest floods, dangerous storms, or tornadoes. Hurricane season is just around the corner. It’s heartbreaking to see how so many people can lose everything during one of these frequent severe weather events.
But it’s not just extreme seasonal storms that can destroy all of your belongings. Fire can occur at any time during the year, so can floods caused by broken water pipes.
You’ve seen how people narrowly escape their homes or businesses sometimes with only their lives and their pets. They have to start over in so many ways. How in the world do they reconstruct their financial records, including their tax files? They don’t have to do as much of it if they’ve prepped ahead of time for an emergency. Here are some tips and tricks to help stay prepared.
How Long Should You Keep Tax Records?
You don’t have to store your old 1040s and related documents and receipts forever. Though there are some exceptions, the IRS says you should keep copies of your returns for three years. This includes the records you used to prepare your return, like receipts, W-2s, and 1099s. Before you discard them, consider whether any other entity like your insurance company might want to see them for some reason.
The IRS says you should keep your tax returns and supporting documentation for at least three years after you file.
The Flimsy Reality
There are a lot of file folders or big envelopes containing old tax returns and supporting documentation sitting on shelves in basements and garages. If you’re conscientious about disaster preparedness, this is obviously not the best storage method.
Upgrade To a Physical Lockbox
Maybe you’re already super-organized, and you have a lockable, fireproof, waterproof file box containing all of your vital information, stored in a safe place where it can be grabbed quickly. If not, you might want to consider it. You can get one for under $50. Besides at least three years’ worth of tax returns, receipts, and other related documents, there are other financial papers you could store in one (or two) of these, including:
● Account numbers and contact information for all of your financial institutions.
● Property ownership papers (deeds, car titles, etc.).
● Pet health records.
● Personal documents (birth and marriage certificates, military discharge papers, passports, etc.).
● Insurance policies and agency contact information.
Use Technology
Even if you store your important papers in a physical lockbox or a safety deposit box, you could still lose them in a high-wind event like a tornado. Digital storage is a good alternative, though if you go this route, be sure to learn all you can about the security protocols for any services you use. As we’ve learned, data stored in the cloud can be compromised by hackers, but you can minimize your chances of a breach by being informed and selective.
You can store important personal documents in the cloud, but scrutinize the security protocols for any service you use.
Some Documents Are Already Stored Online
Do you already have at least some documents in electronic format? That’s great. If not, it’s easy to start. For example, If you’re using an online tax preparation website or having your taxes done by an accountant or other tax service, you probably have access to your returns online or as PDF files stored on your computer. If you’re doing your banking and bill-paying online, and you have login credentials for your credit card issuers, insurance providers, brokerages, etc., you have a head start on your emergency preparedness.
If the worst happens, you only need to get to a PC with internet access.
Start Scanning
If you still have a lot of paper that isn’t yet in online storage and you don’t have a good, reliable scanner, it may be time to invest in one and plan to spend some serious time with it, especially if you’re still preparing your taxes on paper. You’ll need to scan the entire return.
Receipts and other supporting tax documentation are a problem no matter how you’re doing your taxes. Should the IRS audit you, you’ll need proof to back up many of the numbers on your 1040 and related forms and schedules – especially if you’re a small business (including gig workers) with a lot of expenses. That can mean scanning a lot of paper. You’d be wise to scan-as-you-go.
Store In a Safe Place
You probably already know what your options are for storing digital documents. You can save them to USB “thumb” drives or to the cloud storage you undoubtedly have as an add-on to an email service, for example. Some banks and third-party vendors offer virtual safe deposit boxes. You might also consider an online password manager but use one that has exceptionally strong security.
We hope you never experience an extreme storm or other emergency that destroys your critical individual or business records. But we strongly urge you to prepare for such a possibility ahead of time. Get in touch with us if you’re thinking of changing your current tax preparation method to make it more secure. We’ll be happy to help with year-round tax planning and/or income tax prep itself.
