In the aftermath of a disaster, individuals and businesses are often left grappling with the destruction of essential documents and records. However, the IRS makes it clear: your burden of proof does not change just because documents are destroyed by an external force. Taxpayers are obligated to reconstruct their financial records to fulfill their tax obligations and claim the benefits they are entitled to.
The Consequences of Inadequate Records
The IRS warning highlights a significant consequence: if records cannot be reconstructed, tax benefits are likely to be denied. This denial can result in financial strain, especially for businesses already dealing with the aftermath of a disaster. Denied benefits could mean higher tax liabilities, impacting cash flow and hindering recovery efforts.
The IRS warns you to have an emergency preparedness plan to protect important tax and financial data. Here are some tips for keeping your business safe:
1. Keep original documents in a waterproof container in a safe space
2. Make copies of critical documents and put in a different location like a safe deposit box
3. Scan and store documents on an easily portable drive, like a flash drive or external hard drive
4. Utilize cloud storage for the ultimate back-up system, services like Google Drive or Microsoft OneDrive are perfect for this.
5. Maintain a record of high-value property in a list or better yet, with photos or videos included. Update regularly.
Conclusion: Prepare for the Unexpected
While disasters are unpredictable, your approach to record-keeping shouldn’t be. By maintaining thorough and up-to-date financial records, you not only ensure compliance with tax regulations but also safeguard your business against unforeseen challenges. The IRS warning serves as a valuable lesson: preparation is key. Invest in robust record-keeping practices, implement secure backup systems, and have a disaster recovery plan in place. By doing so, you’ll not only protect your business’s financial health but also pave the way for a smoother recovery if the unexpected occurs.