Hurricane

Here are 4 easy steps to help you in the event of a natural disaster:

1.  Create an Electronic Backup Set of Records

• Always keep an extra set of electronic backup records in a safe place away from your originals.
• One advantage of preparing your own taxes with tax software is you have control over saving your own copies of tax files.  Always save your tax return as a PDF file and back it up on a flash drive or CD.
• Email yourself a copy of your PDF file(s) so even if your computer is inaccessible, you can access your emailed PDF file from any computer.
• Banks and financial institutions can provide electronic copies of important documents.  Don’t forget you can access that information online.

2.  Order Transcripts or Copies From the IRS

• If you still can’t access your tax records you can request backup copies of previously filed tax returns and all attachments by filing Form 4506.
• You can also request transcripts by filing Form 4506-T.  Transcripts show most line items including your adjusted gross income.  Transcripts can also be ordered online or by calling (800)908-9946.

3.  Document Valuables

• Always photograph or videotape contents of your home to help prove market value of items for insurance and casualty loss claims.
• Store photographs and videos outside your home.
• Snap pictures of valuables on your cell phone and email the pictures to yourself or a trusted friend or relative so you can access them from any computer.

4.  Check the IRS Tax Relief Site

• IRS provides relief to individuals and businesses who live in areas that have been declared a major natural disaster by the federal government.
• Relief can be in the form of postponement of tax filing and payment deadlines.
• Recent victims of Hurricane Isaac have an extended tax filing and tax payment deadline of January 11, 2013 for their 2011 taxes.
• If you are affected by disaster, you can also call (866)562-5227 to speak to a specialist trained to handle disaster related issues.
• For additional information regarding assistance in the event of a disaster, check the IRS Disaster Losses Kit for Individuals.

* The President has signed disaster declarations for individuals impacted by Hurricane Sandy in New York and New Jersey.  Find out how to claim casualty losses if you are a victim of National Disaster in an area federally declared as a disaster.

How do you save your important documents?  Do you have any helpful tips to share?

Before we throw out old documents and clean out the room, we need to know what to keep (and for how long) and what we can shred, especially when it comes to our tax records.

Tax Records

How Long Should We Keep Tax Records?

I decided to check the IRS guidelines first.  The gist of their guidelines is that you only need to store records for as long as the period of limitations applies. For example, that means that if there is still time for you to amend one of your tax filings, you should keep the records for that tax year.  The period of limitations is the period of time in which you can amend your tax return to claim a tax credit or tax refund or that the IRS can assess additional tax.

The IRS also has different timetables, depending on your circumstances as follows:

Period of Limitations

I should also note that even though you may not need to keep these records for tax purposes, please check to see if you need them for some other financial or legal reason.

How to Store Tax Records

As I reviewed the IRS guidelines, I noticed that they did not specify a particular method on how to store your records. That means that if you prefer, you can keep an electronic back up of your tax records. You can also keep them in the traditional paper form as well, it’s up to you.

If you’re trying to explore some options for digital storage here are a few you may want to check out:

• Scan/Save: The easiest way to save and store that data is to go ahead scan and save the copies. You can put it on an external hard drive where you can store in a secure place.
• DropBox: They specialize with digital storage and have several plans available including free, professional, and team accounts.
• Amazon CloudDrive: Amazon also has a digital storage service that is free for the first 5 GBs.

Of course, you have to weigh which options would be best for you and your organizational needs. Since much of these records have sensitive financial information, please make sure whatever you choose is secure.

Thoughts on Storing Tax Records

For us that means we’ll be spending a weekend getting our financial records stored in a secure spot while shredding all of our old stuff from college. Hopefully it’ll only be a weekend project and we’ll have more space available to rearrange everything in our office next month.

I’d love to hear from you about how your filing system is done at home? How long do you keep your records (tax related and not)? Do you have electronic filing as a part pf your system? Why or why not?

Natural Disaster

Here are helpful tips to help you safeguard your records:

Create an Electronic Backup Set of Records

• You should keep an extra set of electronic backup records in a safe place away from your original set.
• One advantage of preparing your own taxes with tax software is you can have control over saving your own copies of tax files.  Always save your tax return as a PDF file and back it up on a flash drive or CD.
• I always suggest that you email yourself a copy of your PDF file(s) so even if your computer is inaccessible, you can access your emailed PDF file from any computer.
• Banks and financial institutions can provide electronic copies of important documents.  Don’t forget you can access that information online.

Order Transcripts or Copies From the IRS

• If you still can’t access your tax records you can request backup copies of previously filed tax returns and all attachments by filing Form 4506.
• You can also request transcripts by filing Form 4506-T.  Transcripts show most line items including your adjusted gross income.  Transcripts can also be ordered online or by calling (800)908-9946.
• Special tax law provisions may help taxpayers and businesses recover financially from the impact of disaster especially when the federal government declares their location to be a major disaster area.  Click on IRS’ s Disaster Assistance and Emergency Relief for Individuals and Businesses for more information.
• If you are affected by disaster, you can also call (866)562-5227 to speak to a specialist trained to handle disaster related issues.
• For additional information regarding assistance in the event of a disaster, check the IRS Disaster Losses Kit for Individuals.

Document Valuables

• Always photograph or videotape contents of your home to help prove market value of items for insurance and casualty loss claims.
• Store photographs and videos outside your home.
• Snap pictures of valuables on your cell phone and email the pictures to yourself or a trusted friend or relative so you can access them from any computer.

Following these tips will give you less to worry about in the event of a disaster.  What plans have you made to safeguard your important documents?  Do you have any special tips to share?

We all have important documents. From the title to your car or house, to birth certificates,  Social Security cards, and tax returns. We have to protect those important records and documents. You want to make sure that you can access these records when you need them, but you also need to make sure they are safe from the ravages of natural disasters.

Natural Disaster

If your home sustains damage because of flood, fire, tornado, earthquake, or act of God, you want to make sure that your important records aren’t destroyed in the process. One way to do this is to purchase a properly rated safe. There are safes designed to withstand fire and flood. Your original documents can be well protected. But what happens if you can’t access them when you need them? The answer is to keep an electronic copy in a safe place.

Keep Your Records Electronically

One way you can improve your ability to keep your records safe and accessible is to keep them electronically. Many investment brokers, banks, and even insurance companies provide electronic copies of important documents and statements. In this case, it’s often possible to access at least 12 months (or more) worth of information online.

You can also create your own electronic files. Just scan your original documents to create an electronic copy. You can keep these on a flash drive separate from the originals. You can keep it in a safe deposit box at the bank or a safe at your home (unless that’s where your paper copies are). It’s also possible to back up your files using secure cloud storage services. Even emailing them to yourself can create an easily accessible backup copy available where ever you have Internet access.

Protecting Your Electronic Files

Naturally, since these are all sensitive documents, you will be concerned with security. The downside to storing your files electronically is that you run the risk of someone seeing your files. You can reduce the likelihood that someone will see sensitive personal financial information by encrypting the files and/or protecting them with a password that would be difficult for others to guess. This will make it more difficult for others to access your information, but it still leaves it largely accessible to you, with a little extra effort.

When protecting your electronic files, it’s important to make sure that the information is regularly updated. When you make changes to beneficiary information, or if you do something new with an account, you should make sure that you have the most up to date records. Using an external hard drive or flash drive can help you overwrite old information, as can online storage. Burning to disc can be effective, but you might need a new disc each time you change your information.

Lastly, you need to know that your important documents are safe and accessible. Keep originals in a good safe, but also consider keeping electronic copies. You might eventually need the originals of your important papers, but if they are buried under the rubble of your home, the electronic record that you have stored in a secure cloud drive online might suffice until your records are available. Take the proper steps to protect your information, and you will be prepared in any emergency.

Record Keeping

According to the IRS, you must keep the records needed to substantiate all your income and deductions available for inspection. You don’t have to spread them out on the coffee table in case someone from the IRS knocks your door.  But upon reasonable notice from the IRS, you must be able to produce the records for an audit.

Except in the case of fraud, the IRS must audit your return within three years from the due date of the return or the date of filing, whichever is later. That statute is extended by three years if you misstated your income by 25% or more, and indefinitely if you file a fraudulent return, or no return at all.

Even if you filed your tax return on time and reported all your income, you should retain the following records for a longer period of time even though the statute of limitations has expired:

Prior Tax Returns – Keep copies of all tax returns you have filed in the past. These returns are helpful in preparing future tax returns, and they provide an interesting road map of your financial history that may be of interest to you down the road.

Payment of Taxes – Keep canceled checks that prove that you paid your taxes when due. The IRS records are not always what they should be, and sometimes they misplace your payment.

Basis of Property – Records relating to the cost of property and improvements to that property should be retained as long as you own that property or a replacement property. If you sold your residence, but deferred the tax on the gain by reinvesting in a new house under the old rules in effect before 1998, you will need to retain the records for both the new house and the old house.

How Should You Keep Your Tax Records

You should always keep a set of backup records safely away from the original set.  To ease your pain, keep in mind that financial institutions provide documents and statements electronically via the internet and these documents can be downloaded to backup storage devices or burned to a CD.

One of the benefits of using TurboTax is your tax information is safely and securely stored so you can access it and transfer it to the next tax year.  Although your tax information is saved when you complete your tax return, it is best to also save your tax return as a PDF file.  This step can save you valuable time if you need to access information such as your adjusted gross income or if a copy is required to obtain a loan.  In addition, if you use TurboTax Free edition, you need to save a PDF file.

TurboTax apps for your mobile or tablet device also will store your tax return, however you should back up your completed tax files for your records before deleting the apps.

Of course, if you want to keep all your records forever, there’s no rule against it if you have the room. We know many people who like to pore over old records, and seem to derive as much enjoyment from it as some of us do looking at old photographs.

But when the neighbors complain that your burgeoning collection of bank statements, checks and receipts are blowing out your windows and flying around the neighborhood, it’s time for some spring cleaning.

Create an Electronic Backup Set of Records

• Taxpayers should keep a set of backup records in a safe place away from the original set.  Also, keep in mind that financial institutions provide documents and statements electronically, available on the internet.  These documents can be downloaded to a backup storage device or burned to a CD.
• If you prepared your taxes using tax software, always save your return as a PDF file. This step can assist you when you need to access your adjusted gross income for tax purposes or if documentation is required for loans.
• As an additional safeguard, I always suggest that you email your PDF file(s) to your email address so that even if your computer has had enough, you can still access your emailed PDF file from any computer.

Order Transcript or Copies From the IRS

• Still can’t access backup copies of your tax return?  The IRS can help.  You can request backup copies of previously filed tax returns and all attachments by filing Form 4506.
• You can also request transcripts by filing Form 4506-T.  Transcripts show most line items including your adjusted gross income.  Transcripts can also be ordered online or by calling (800)908-9946.
• Special tax law provisions may help taxpayers and businesses recover financially from the impact of disaster especially when the federal government declares their location to be a major disaster area.  Click on IRS’ s Disaster Assistance and Emergency Relief for Individuals and Businesses for more information.
• If you are affected by disaster, you can also call (866)562-5227 to speak to a specialist trained to handle disaster related issues.
• For additional information regarding assistance in the event of a disaster, check the IRS Disaster Losses Kit for Individuals.

Document Valuables

• Taxpayers should photograph or videotape contents of their home to help prove the market value of items for insurance and casualty loss claims.  Photographs and videotapes should be stored with friends and family outside your area.

Update Emergency Plans

• Personal and business preparedness needs can change over time.  Emergency plans should be reviewed and discussed with all involved annually.

Check on Fiduciary Bonds

• If your business uses a payroll service provider, ask if it has a fiduciary bond in place.  The bond could protect you as an employer in the event of default by the payroll service provider.

Prepare: Create a Backup Set of Records

The most important thing you can do to safeguard your tax records and related tax and financial information is to create a backup set of records in an electronic format, keeping them in a safe and secure location away from the original documents. Many documents, such as bank statements, tax returns, and insurance policies, are already available in an electronic format. For any paper documents that you may have, scan them into your computer using a standalone scanner or an all-in-one-printer.

When you’ve collected all of your important tax and financial information in an electronic format, make sure to save everything onto a backup storage device such as an external hard drive, a writable DVD or CD, a USB flash memory drive, or an online data backup service. Internet data backup services are growing in popularity because they offer “off-site” electronic data backup and recovery. This means that if your house (and your external hard drive) are burned down, flooded, or torn apart, you can easily recover your information with an internet connection.

If scanning documents and saving electronic files seems too complicated, you can always make hard copies of all of your information. Just be sure to store these copies in a separate and secure location from your original documents. No matter if you choose electronic copies or paper copies, the most important thing you can do to safeguard your tax information is to create a backup set of records.

Plan: Take Inventory of Your Records and Possessions

You may laugh, but you need to remember where you saved and stored your tax information and you need to take inventory of your possessions. If a disaster strikes, you will eventually need to find your tax information and begin the process of recovery. The IRS cannot help you remember where you saved your backup set of records, that’s on you. But the IRS does offer a Casualty Disaster and Theft Loss Workbook, Publication 584. This workbook will assist you in creating a written and photographed record of what you own (but it must be completed before a disaster strikes). And just like the backup records of your tax information, this workbook should also be stored in a separate and secure location.

Stay Informed: Questions and Recovery

To learn more, read What about Tax Relief in Disaster Situations, Would Your Tax Records Survive a Natural Disaster, or contact the IRS by visiting www.IRS.gov (keyword search “disaster”) with any questions or concerns you may have about safeguarding your tax information. If you are a victim of a disaster, you can contact the IRS Disaster Hotline at 1-866-562-5227 to speak with a trained disaster-related specialist. Transcripts of your previous tax returns may be requested online at IRS tax return transcripts, by phone at 1-800-908-9946, or by filling out Form 4506T-EZ and mailing to the address listed in the instructions. Official tax return copies may be requested by filing out Form 4506, or by phone at 1-800-908-9946.