How to Safeguard Your Tax Records

It’s great to have write offs, but you better have proof of your deductions if Uncle Sam comes knocking on your door.

It’s important to maintain a good system of record storage. And if you live in an area prone to environmental disasters such as flooding or earthquakes, you need to find a way to store your tax documents and other important papers to ensure they survive.

Back in the day I would make copies of every important client document and store them with a copy of the income tax return in a filing cabinet. Then one day I noticed that whenever a client called about his tax return, I would merely bring it up in the tax preparation software to discuss it. I never pulled the file unless I had to check copies of the original paperwork. So I swapped the copier machine for a scanner, and now all my documents are filed electronically and my filing cabinet is a vase holder.

It takes only a few minutes to scan a set of documents to electronic format and entitle them with the tax year in question. Also be sure to scan bank statements, receipts for tax deductions, pictures of your home office and flyers from events that qualify for travel and entertainment expenses. Keep an electronic copy of everything you would need to produce in the event of a full-scale audit. Not only should you store them on your hard drive, but create a second disk in a fireproof safe in case of fire, a disk crash or evacuation.

It’s important to also store other valuable documents electronically, such as insurance policies, your will, trust documents, pictures of collectibles, art, and jewelry.

To document your valuables, the IRS has a disaster loss workbook Publication 584 Casualty, Disaster and Theft Loss Workbook, which can help you compile a room-by-room list of belongings. For insurance purposes, the contents of this workbook should be scanned as well.

The IRS states, “If a disaster strikes, affected taxpayers can call 1-866-562-5227 to speak with IRS specialists trained to handle disaster-related issues. Taxpayers can request copies of previously-filed tax returns by filing Form 4506, Request for Copy of Tax Return. Taxpayers can also request transcripts showing most line items on a return online at IRS.gov, by calling 1-800-908-9946 or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Return. More information on preparing for disasters can be found at IRS.gov. Forms and publications can be downloaded at www.IRS.gov or ordered by calling 1-800-829-3676.”

Remember, your tax pro can also obtain this information for you all you need only sign IRS Form 2848 Power of Attorney which gives your tax professional the authority to receive confidential information about your tax account.

Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.