Small Business Taxes & Management
IRS Offers Tips for Safeguarding Tax Records
Small Business Taxes & ManagementTM--Copyright 2012, A/N Group, Inc.
Hurricane season has started and the IRS encourages individuals and businesses to safeguard their tax records against natural disasters by taking a few simple steps.
Here are four tips from the IRS to help you prepare in case a disaster strikes.
- Backup records electronically. Taxpayers should keep a set of backup records in a safe place away from the original set. Keeping a backup set of records, bank statements, tax returns, insurance policies, etc is easier now that many financial institutions provide statements and documents electronically. Even if the original record is only available on paper, it can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a portable backup storage device such as an external hard drive, CD or DVD that you can take with you in the event that you need to evacuate.
- Document valuables. Taxpayers should photograph or videotape the contents of their home, especially items of higher value. A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored at an outside location.
To document your valuables, the IRS has a disaster loss workbook, Publication 584, Casualty, Disaster and Theft Loss Workbook, which can help taxpayers compile a room-by-room list of belongings.
- Update Emergency Plans Emergency plans should be reviewed at least once a year. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company changes functions, plans should be updated and employees should be informed.
- IRS Ready to Help 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 IRS.gov or ordered by calling 1-800-829-3676.
Here are some additional thoughts:
- Scanners are now cheap. So are outboard hard drivers. Get a scanner that will allow you to load multiple pages at a time. Store the scanned documents on the computer's onboard drive (if possible) and back up your entire computer drive on the outboard drive. Then have a plan for storing the outboard drive someplace safe. Your options depend on your situation. If your location is prone to floods, send the drive to a safer location. If not, a safe deposit box may suffice.
- Another option may be to set up a deal with an out-of-town relative or friend where you send the files to his or her computer. (This may not be appropriate with confidential files such as medical records, etc.)
- Keep in mind that a natural disaster won't be a good enough excuse if you're audited by the IRS. You may get sympathy and the Service is likely to give you some leeway, you can still be required to substantiate expenses with invoices, bank statements, etc. There is no rule that exempts you.
- A detailed plan is the best approach, but any plan is better than nothing. Your office manager's home is on high ground and she's got a back-up generator. Consider buying a good computer and leave it at her home. Back it up regularly. Have a second telephone line installed so you can forward your office line there. Have a plan for downloading your e-mails. This won't be a full replacement for your office, but you'll at least have a phone and computer and can tell customers and suppliers your situation. (Obviously, you've got to compensate her for the inconvenience. And watch state labor laws.) Most businesses don't need to operate at the same level as normal times. If your customers are mostly local, chances are they'll be largely in the same position and your business will be off. This will work for a small firm, larger businesses may have to be more creative.
- Have a group meeting. Your staff is likely to have good suggestions.
- You don't have to cover all contingencies, but at least plan to handle the businesses' most critical issues. For example, you operate a restaurant, you might want to buy a backup generator that will run the freezer and refrigerators. If you run an art gallery, you might want a truck ready to transport items to a safer location. In a flood prone area, consider pumps to handle the water. You may be able to protect your property for a lot less than you think.
- If your business is national or even regional, you might want to plan to continue operating at a higher level. That's a more complex problem. But again, concentrate on the most critical issues first.
- Make sure your insurance coverage is adequate. New, larger deductibles may apply to wind damage. You may have to purchase the insurance well ahead of the disaster.
Copyright 2012 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Articles in this publication are not intended to be used, and cannot be used, for the purpose of avoiding accuracy-related penalties that may be imposed on a taxpayer. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 06/13/12