A natural disaster that damages or destroys documents that support a taxpayer’s federal income tax return can mean a lot of extra stress of a taxpayer. Without the appropriate documentation to support expenses and other deductions, the taxpayer may find in some cases that the IRS will disallow claims for casualty loss.
Depending on where a taxpayer lives, a taxpayer can have an increased risk of having a natural disaster affect him or her. Taxpayers who live in Florida or along the east coast are the most likely to be struck by a hurricane. Likewise, taxpayers who live in the Midwest and parts of the south are the most likely to have a tornado damage or destroy their homes.
Even taxpayers who live outside of these areas may find themselves affected by a disaster, as a fire can strike no matter when someone lives. What should taxpayers do to protect their tax records, to help make sure they are available when needed to prepare their tax returns or respond to an IRS audit?
Thankfully, there are steps a taxpayer can take to minimize the risk associated with losing tax documents in a disaster. Following are tips provided by the IRS and other agencies that if followed can help make sure a taxpayer affected by a natural disaster does not find their tax documents lost in the storm.
Create Electronic Copes of Tax Records
Many entities now provide statements and other records in electronic form. Therefore, creating an electronic copy of tax-related documents may be as easy as scanning in the hardcopy tax documents. However, taxpayers should not store the electronic copy of these documents in the same location as the hardcopy versions, as a single disaster could wipe out both copies.
Therefore, taxpayers should store an electronic copy of tax documents at another location. Options include the home of a friend or relative (who should live far enough away such that the same disaster will not after them as well), a safety deposit box, or even an online back stored in the cloud.
In the event of a casualty loss related to a disaster, it is important for taxpayers to have a record of the lost valuables they will seek to deduct for income tax purposes, as well as a record they can submit to their insurance company. Photographs or videos are an easy way for a taxpayer to document these items.
Photographs or videos of valuables should be stored electronically away from the taxpayer’s place of residence or business.
Speak with the IRS
Taxpayers can obtain copies of previous tax returns from the IRS. In addition, if a taxpayer loses tax documentation as the result of a disaster, the taxpayer should speak with the IRS about the situation. The IRS can instruct the taxpayer on how to proceed. It may be possible for the taxpayer to reconstruct the lost tax documentation. In addition, the taxpayer may be able to substitute other documentation in place of some or all lost tax documents.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.