You never know when a disaster will strike or what damage it will cause. Your tax records may seem like a small thing but these can be very important. Here are some tips for protecting your tax records.
Why You Need To Protect Your Tax Records
If your tax records are destroyed, you’ll have to go through a painstaking and time-consuming record reconstruction process.
With digital technology, it’s easy to create backup copies of your records that will be safe from almost any disaster (short of nuclear war). You can make a digital copy of any piece of paper by using a scanner or smartphone and store it online in the cloud.
These online records are almost impervious to disasters because they are stored at at multiple locations throughout the country. If a flood destroys your house and your computer, you’ll still be able to access your records stored online. This is the most foolproof document backup system ever invented.
So, which records should you store online? Here’s a list.
Which Tax Records Do You Need To Keep?
Naturally, you should keep digital copies of your tax returns online. If, like most taxpayers, you file your taxes electronically, you’ll already have digital copies. If your returns are on paper, you’ll need to scan them.
You need to keep at least three years worth of returns. The IRS can audit you no more than three years after you file.
Yet, it’s better to keep at least six years of returns. If there is an error of 25 percent or more on your return, the IRS has that long to audit you. There is no statute of limitations in cases of fraud
To be on the safe side, keep digital copies of every return you’ve ever filed.
You also should have copies of records that document your deductions. This will include bank statements, credit card statements, brokerage statements, mutual fund statements, retirement contributions, charitable contributions, mortgage payments, homeowner expenses.
Most of these records are already stored online with your bank, credit card company, or broker. Make your own digital backup copies of records that are not readily available online, such as receipts for purchases of business equipment. Many apps are available that enable you to create and store copies of receipts with your smartphone.
Records Establishing Your Home’s Tax Basis
For most people. their home is their most valuable asset. If it is damaged or destroyed in a disaster, you’ll need to be able to establish the value of your home and the items in it. Make and keep digital copies of your deed, mortgage and home loan papers, and receipts for home improvements.
Photograph or video the contents of your home, especially items of higher value. Photographic records can help you prove the market value of your personal property for insurance and casualty loss claims.
There are many apps that you can use with your smartphone to create a photo inventory of your personal belongings and store online in the cloud. Several apps will help you create online records of your stuff:
In addition, the IRS has a disaster loss workbook. This will help you compile a room-by-room list of belongings.
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.