Digitize and Backup Your Tax Records

In preparation for tax day (which is right around the corner), you may want to consider going digital with your tax records. Once a year, you take the time to pull all of your tax documents together, so why not use that opportunity to secure those files electronically?

For generations, people have relied solely on the old-school method of storing a hard copy of their financial tax records (without a backup plan for fire or flood), that’s just what they did. Today, we live in a digital world where going paperless is the norm. With desktop scanners commonplace and mobile scanning apps on the rise, going digital is easier than ever before.

Digital backups of tax records help you quickly respond to an IRS audit

Digitize and Organize Tax Records

Whether you scan each document as you receive it or wait until you are ready to file your return, going digital with your tax records is the way to go. Create a clearly named folder on your computer so that as you scan each document, you can name and organize each supporting tax document for future reference. The IRS provides tips for managing your tax records if you need additional information.

If you are wondering if the Internal Revenue Service (IRS) is OK with electronic record keeping, the answer is YES. Since 1997, the IRS has openly accepted electronic records as proof for any questions related to filings as long as they are legible and readable.

While you can request a copy of your tax transcripts online by going to the IRS.gov website and clicking on "get transcript online" if you need your prior years Adjusted Gross Income (AGI) to e-file, keeping your digital copy of your return is a faster alternative.

What Tax Records Do You Need to Save Digitally?

Not all financial records need to be saved. In most cases, you only need to keep a copy of your tax return and records that pertain to credits or deductions that are claimed on your tax return filing, along with your W-2 and 1099 forms. The IRS provides a more complete list of tax documents to keep.

Backup Your Tax Records

The key here is to ensure that your digital records are available when you need them. Having a backup of your financial tax records will keep you in good graces with the IRS in the event you are audited. Having a backup of your backup is even better. Optimistically, you should follow the 3-2-1 backup rule to ensure that your financial data is recoverable should you need it.

The 3-2-1 backup rule states that you should:

• Have 3 copies of your data
• Stored in 2 different types of media
• With 1 backup kept off-site.

Now that you are ready to back up your tax records, you need to know the pros and cons of the most popular media options for storing your financial files digitally.

Regularly Test Your Backups

Lastly, you should regularly test your backups to ensure that your data is recoverable. An audit is not the time to find out if your financial data to support your tax filing is not recoverable.

“Once a disaster occurs, it is often too late to test the restore process on your backup system,” AccountingWEB stated. “Regularly restore sample files from your backups to validate that the restore process works and that it functions according to your expectations.”