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Protecting Tax Records Before the Next Natural Disaster Strikes

natural disaster, tax records, protecting tax records

When preparing for a natural disaster, your emergency preparedness planning could make the difference between staying in business and losing everything. People tend to think about the supplies they’ll need or how to best protect their property – picking up extra gallons of water or securing heavy items in your office like bookcases, refrigerators, and filing cabinets is what we instinctively know to do when preparing for a natural disaster. However, by ensuring your company tax records are safe and valuables are documented, if disaster does strike, you’ll be ready.

Keep Records Electronically

Keeping your accounting records electronically is generally the best practice for any company. However, most companies operate with paper copies of receipts, bank statements, invoices, bills, and employee records. By scanning these items monthly, or even quarterly, you’re ensuring that should a natural disaster strike, you won’t lose your backup documentation come tax season.

Protect Vital Business Records

The most important business records, such as Articles of Incorporation originals, real estate deeds and promissory notes, should be kept in a safe that is resistant to fire, heat, burglary tools, and torches. Copies should be scanned in and kept digitally, either on an external hard drive, CD, or USB. If possible, additional hard-copies should be kept at a secondary location.

Keeping an additional copy of contact information for customers, suppliers, and distributors off-site or with your digital records is also recommended.

It is crucial that you know what’s covered on your insurance policy and have the contact names and phone numbers with a secondary copy of your policy for easy access.

Document Equipment

When filing your taxes, your tax preparer takes into account equipment depreciation. By taking pictures as a record of any equipment and furniture you have in your office for insurance claims, as well as casualty loss deductions for filing your taxes next year, you’ll be prepared should the worst happen.

Check on Fiduciary Bonds

If you or your company use a payroll service, be sure to ask the provider if they have some type of fiduciary bond. The fiduciary bond could potentially protect you if the payroll service provider defaults.

Update Emergency Plans

Your disaster preparedness needs to change over time with your business needs. Hiring new employees or organizational structure changes can cause a gap in responsibilities. Be sure to review your emergency plan changes with your employees, update emergency contact information regularly, and adjust training for new hires based on the ever-changing needs of your business.

Cyberattack Precautions

While cyberattacks are not a natural disaster, you are more vulnerable to a cyberattack in the days after a natural disaster. A cyberattack is any effort to expose, alter, disable, destroy, steal, or gain unauthorized access to an asset or its unauthorized use. These can lead to personal information theft, damage to your safety and reputation, and loss of money.

You can protect yourself and your business from a cyberattack by keeping software and operating systems up-to-date, using strong passwords and two-factor authentication, using encrypted Internet connections, creating backup files, and protecting your WiFi network.

After a natural disaster strikes, you should monitor your accounts for suspicious activity and offers that sound too good to be true, check account statements and credit reports regularly, use antivirus software, malware, and firewalls to block intrusions, and use sites that have security certificates.

The IRS recommends these easy and practical steps to better protect your tax records in general:

  • Always keep a copy of the federal and state tax returns and the supporting documents that were filed with the IRS and State. Having these prior-year returns on hand will not only help you prepare your next year’s taxes, but having receipts will document any credits or deductions you claim, should questions arise later.
  • If you have paper records, keeping them in a secure location is ideal. The IRS recommends keeping them locked in a secure desk drawer or safe.
  • If you opt to keep your records electronically on a computer, you should have an additional back-up in the event your hard drive crashes. It is also recommended that you encrypt any files you have on your computer and back-up drives.
  • When it’s time to dispose of old tax records, you should not throw your paper tax returns and any supporting paperwork into the trash. The federal and state returns, including any receipts or invoices, should be shredded before tossing.
  • You should wipe the hard drives of any electronic you are disposing of before you trash or sell – this includes mobile phones and tablets. Simply deleting the files will not remove them completely. By wiping the hard drives, you’re erasing all sensitive data, including Social Security Numbers, medical information, etc. Keep in mind; this may require you to use a special service or software.

The IRS recommends that you retain copies of your personal tax returns and supporting documents for three-to-seven years. You should keep any records that are related to the property you own for three-to-seven years after the year that you sell or get rid of the property. The IRS allows you a three-year timeframe where you can file any amended returns. If there are questions on your returns, seven years is the allowed timeframe for filing for an adjustment. 

If you’ve fallen victim to a disaster, or need help with preparation, contact me today and let me help with any disaster-related tax questions or issues you might have.

References

Internal Revenue Service. “Tips to Keep Your Tax Records Secure; Protect Yourself from Identity Theft.” Https://Www.irs.gov/Co, 5 June 2020, https://www.irs.gov/newsroom/tips-to-keep-your-tax-records-secure-protect-yourself-from-identity-theft.

“Cyberattack.” Wikipedia, Wikimedia Foundation, 2 September 2020, https://en.wikipedia.org/wiki/Cyberattack.

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