When disaster strikes, you want to get back to business as soon as possible. Whether your business records are destroyed as a result of a hurricane, tornado, fire, or another natural disaster, it is important to have a detailed records retention policy and business disaster plan in place before the unfortunate event occurs. Your business disaster plan should include how to store and recover your business records.
When business records are lost or destroyed in a disaster, you are then faced with two major dilemmas. First, you will no longer have your business records to support tax deductions. Second, you do not have your records to support losses due to the disaster. So, what do you do when these important documents are lost?
Supporting Tax Deductions without Documents
The IRS requires that both businesses and individuals have documents to support their business or personal tax deductions. If these documents are missing and you are audited, you could have a problem. In fact, tax regulations state that if documents are missing or unavailable, the taxpayer is not relieved of the burden of demonstrating his or her entitlement to deductions that are being claimed. Make every attempt to reconstruct lost documents.
Document Disaster Damage
Following a disaster, one of the first things you want to do is to document the disaster. If you don’t have documentation reporting that the disaster occurred and cannot produce necessary documents, the IRS may assume you didn’t have the documents in the first place. The best way to document that a disaster occurred is to file a claim with your insurance company. The IRS has no way of knowing that your business suffered loss and damage unless it’s writing.
How to Prepare to Protect Your Documents Before Disaster Strikes
There are a few things that you can do to prepare your business and protect your documents before disaster strikes. Being prepared and staying on top of your records retention policy can save you when disaster strikes.
First, set up a recordkeeping system that contains all the business records you need for tax purposes. Be sure this record is complete and continually updated.
Second, keep your documents as safe as possible. Consider keeping paper copies in a fire safe box, creating electronic copies, or any other tactics that will help your business preserve those important documents.
Finally, back up your records! This simple task can save you if documents are destroyed.
At Information Requirements Clearinghouse, we know and understand the importance of having and maintaining business records. If you need help establishing a record retention schedule for your business, contact Information Requirements Clearinghouse today.