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Protecting Your Tax and Financial Documents

Records should be kept for a minimum of three to seven years, or some people keep them indefinitely. Some wonder how easy is it to keep the documents?

So, how easy is it to store and protect your records containing confidential and sensitive information? A few tips:

1.     Secure, Online Storage Options:

Most financial institutions, such as banks, etc., can store online accounts’ history and details for an indefinite time period but check with your institute to ensure the time you are able to access the data. Other sites that can provide a secured online storage site should begin with https://.

The guideline issued by the IRS for electronic storage of tax records includes three simple criteria:

1)    Secure – a site with an address of https:// should guarantee the accuracy, integrity, and reliability of your records.

2)    Legible and readable hard copies should be produced from the site.

3)    The data needs to be organized and catalogued so it is easy to trace.

The tax records can be compressed or encrypted for added security but should not affect your capability to locate and provide copies of the data to the IRS.

2.     The Daily Mailbox:

Financial institutions may send monthly statements through the mail with several year-end statements received during January and February of every year. In particular, your employer’s W-2 or 1099 forms may come through the postal system. Check your mailbox daily to ensure that these statements do not sit in an unsecured mailbox. If possible, contact your institution to change your receipt to electronic statements thus it also becomes easier to store on your flash drive, or elsewhere, as well as retrieval from an online source.

3.     Good Security Practices at Home:

A few simple rules to maintain at home for the security of your tax records:

1)    Passwords should not be obvious to make it easy for someone to guess.

2)    Ensure your computer is updated with the necessary security and keep it updated. Research and invest into reliable anti-virus software.

3)    Minimize the storage of your confidential data on the computer.

4)    If storage includes paper copies, use a safe or a safety deposit box at a bank to avoid anyone entering your home and stealing the sensitive information…includes family members!

There are many other things that you can implement at home to secure your electronic tax records. The University of Santa Cruz offers a “top 10” list (click) …

4.     Duplicate, Copy, Multiply!

If would give you additional peace of mind, to store multiple “copies” of your tax records. Keep copies in various places to ensure that if one source has a breach, you are able to retrieve data elsewhere. An external drive can crash, a CD or flash drive can be lost or damaged, a cloud provider can go out of business, and then what is your backup option? Check on your records yearly to ensure that you have access to it if it is through an electronic source.

5.     Practice Good Disposal Habits:

When disposing of paper copies of your financial or tax documents, do not throw them in the trash by merely ripping in half. Using a “cross-cut” shredder is one of the best methods to dispose of the documents. If possible, compost the shredded documents in the garden.

By proactively implementing a home storage method for storage and disposal of sensitive and confidential tax and financial records, it will give some peace of mind that no one else may be able to access the data which could be detrimental to you. However, it may not always be 100% fool proof but better than no practice!

Carl Mir 

US Taxes, Consulting & Expat Financial Services   




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