IRS Encourages Safeguarding Financial & Tax Records
As part of Hurricane Preparedness Week, May 21 – 27, the Internal Revenue Service (IRS) is encouraging taxpayers to protect their financial and tax records in the event of a hurricane or other natural disaster.
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“Even if you don’t live in an area prone to hurricanes, this is an excellent time to take a few minutes to help safeguard financial documents that can be hard to replace,” Kevin Brown, Commissioner of the IRS Small Business/Self-Employed Division said in a prepared statement.
Here are some tips for maintaining financial and tax records:
Take Advantage of Paperless Recordkeeping
“New technologies provide taxpayers with new opportunities to keep their records secure,” E. Martin Davidoff, chairman, Tax Liaison Committee, American Association of Attorney-Certified Public Accountants (AAA-CPA), said in the IRS’ media release. “Many people are now receiving bank statements and documents via e-mail. One approach, using a scanner to fill in the gaps of electronic commerce, is to have all financial records in electronic format. By doing so, one can copy all of their records onto a ‘key’ or ‘jump’ drive periodically. Those keys can be sent to a relative in another city for safe-keeping in case one’s normal computer backup systems are destroyed.”
In addition to electronic bank statements, important tax records, like W-2s and tax returns, as well as other paper documents, can be scanned onto an electronic format and stored on a CD or DVD. There are also a variety of software packages that can be used for recordkeeping.
Document Your Valuables
Photograph or videotape the contents of your house, especially items of greater value.
IRS Publication 584: Casualty, Disaster and Theft Loss Workbook (Personal-Use Property) can assist individuals in compiling a room-by-room record of belongings.
“This will help you recall and prove the market value of items for insurance and casualty loss claims,” Tom Ochsenschlager, vice president-taxation, American Institute of Certified Public Accountants (AICPA), said in the IRS media release. “Be sure to store the photos with a friend of family member who lives away from the geographic area at risk."
Remember, a disaster that strikes your home is also likely to strike nearby storage facilities, so choose a location that is far enough away to be safe. In most cases this means out of the state, or at the very least, on the other side of the state.
Check on Fiduciary Bonds
Employers who use payroll service providers should ask the provider whether they have a fiduciary bond in place. The bond protects the employer in the event of default by the payroll service provider.
Update Emergency Plans
Review emergency plans annually. Personal and business situations change with time and the changes affect preparedness needs. Individual taxpayers should make sure they are saving documents everybody should keep, including such things as W-2s, home closing statements and insurance records. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.
Count on the IRS
In the event of disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed.
Immediately after a casualty, copies of tax returns and all attachments (including Form W-2) can be requested using Form4506 Request copy of Tax Return. A copy of the information from your return can be ordered by calling 800-829-1040 or submitting Form 4506-T Request for Transcript of Tax Return. There is no fee for a transcript. Transcripts are available for the current year and returns processed in the three prior years.
Although the National Oceanic and Atmospheric Administration (NOAA) does not predict another record-breaking year like that experienced in 2005, they do expect a very active season. MSNBC notes that the agency’s predictions for the 2005 hurricane season were “way off the mark”.
“NOAA is predicting 13 to 16 named storms, with eight to 10 becoming hurricanes, of which four to six could become ‘major’ hurricanes of Category 3 strength or higher,” Conrad Lautenbacher, administrator of NOAA told MSNBC.
The Atlantic hurricane season begins June 1 and ends November 30, according to NOAA.
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