This year has seen its share of natural disasters. From tornadoes to earthquakes to flash floods, it seems few regions are immune this spring. Adding to the anxiety is peak tornado season, and locally, possible evacuations for Denton county residents due to flooding. The volatile weather patterns have caused many to access their disaster preparedness plans. Though it might not be the first priority on the list, it’s important to protect your documents, especially for businesses. Add these few steps to your emergency plan.
- Gather important documents. Be sure to grab identification documents such as Social Security cards, drivers licenses, passports, birth certificates, marriage licenses; home deeds, insurance policies, and others relating to your estate; as well as financial documents including health insurance cards and documents, bank statements, tax records, as well as stock certificates.
- Protect your hard copies. Storing your documents in a safe is one of the best “safeguards” (sorry) against damage due to acts of God. There are safes designed to withstand fire and flood. In a pinch, place documents in a watertight bag or container. The last thing you want to deal with in the event your home or business is damaged is obtaining copies of documents like birth certificates or deeds.
- Create a digital backup. It makes sense that your backup should be stored in a separate place from the original set of tax documents. Store your files in digital format, either on the cloud (like DropBox), on a CD/DVD or flash drive, or even by emailing them to yourself. Many files can be downloaded, so they are already in digital form. If some of your documents are in hard copy, scan them or simply take a picture with your phone.
- Protect digital copies. With data breaches and identity theft becoming increasingly more common, digital security should not be forgotten when storing sensitive documents. You can encrypt files and/or protect them with a password that isn’t easy to guess. Consider storing a flash drive in a remote location like a safety deposit box at the bank in case your home is completely destroyed.
- Document valuables. You can deduct the value of destroyed homes, vehicles and many other important items on your federal tax return. Document your valuables through photographs and a list-by-list inventory. This will assist with your insurance claims and your tax deductions. Note that you can only deduct the value of an item minus what you received in insurance compensation.
There are two reasons why you need to protect documents: firstly, because you will need them when making the claim (provided that your home is insured against natural disasters, of course), and secondly, to save you the trouble of going through all the formalities for getting new documents, as this can take months and cost you a small fortune.
The IRS has prepared a Casualty, Disaster and Theft Loss Workbook (Publication 584), to help taxpayers determine how to calculate tax deductions for loss of property. Texas residents are not strangers to disaster. Preparing ahead will definitely make recovery easier for individuals and their businesses. Gurian PLLC is a Dallas CPA Firm with extensive experience helping clients prepare for the future. Contact us for a free consultation.
