The damage caused by tornadoes, floods and other catastrophes this year should give taxpayers cause for concern. What if vital tax records are destroyed by an act of nature?
Strategy: Take precautions before disaster strikes. Although tax records may be “reconstructed,” a better approach is to safeguard them in a fire-resistant box or other secure location.
At the very least, copies of important documents should be maintained off-site.
In the past, the IRS has released some record-keeping tips for taxpayers to follow. (IRS fact sheet 2006-19) The guidance encourages taxpayers to routinely protect records from natural disasters such as tornadoes, hurricanes and floods.
• Electronic record-keeping: The IRS encourages you to use email to receive bank statements and other documents. In addition, it suggests keeping all records in electronic format by scanning the ones that are not readily available electronically and saving them separately.
• Inventories: Taxpayers should keep an inventory of valuables. IRS Pub. 584, Casualty, Disaster, and Theft Loss Workbook, includes a workbook for creating an inventory. It also suggests photographing or videotaping valuables for record-keeping. Find the updated Pub. 584, at www.irs.gov/publications/p584/ar01.html.
• Fiduciary bonds: The IRS recommends that employers using payroll service providers to consider fiduciary bonds for protection in case a provider defaults.
• Emergency plans: Employers should update their emergency plans on an annual basis, while individual taxpayers should keep track of important documents, such as W-2s.
Tip: Contact the IRS promptly in the event of a disaster. Copies of returns and transcripts can be obtained by using Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return.
Online resource: Read our white paper, Company Records: What to Keep, What to Dump at www.smallbiztax.net. Click on Resources.