Monday, February 27, 2012

Retain and back up tax records

Records supporting your tax return should be retained for four years after the end of the tax year (i.e. three years after the due date which is normally April 15 of the following year).  If you file later with or without obtaining an extension, you need to keep them for three years after you file.
One way is to store all of your receipts and other data in a box or file cabinet.  I used to do that, but it takes up too much space, so now I scan all documents into a document file I set up for each year.  I bought a Fujitsu ScanSnap S-510 Scanner.  It can scan several pages which is a lot more convenient than scanning one page at a time on a flat bed scanner.  There are better, more expensive scanners, but the one I bought does the job for me.
In addition to tax documents, I also use it to scan and keep a lot of other documents unrelated to my tax return or tax returns of my clients. 
There is still a risk involved.  What if your computer crashes.  For years I had no crashes, but one day I read about Carbonite and other off-site backup services and decided to install Carbonite  just in case.  A year or so later, my computer DID crash.  The backup took a long time, but it worked with one problem:  I had several sets of accounting records and all were restored.  However, for one company, I was unable to establish a new vendor code.  I waited until the end of the year and re-established the company with a new name in order to be able to create new vendor codes
In order to avoid such a situation again, I bought an external hard disk which is connected to my computer with a UBS cord.  Every so often I COPY (not backup) the company files to the external hard disk.  Although it is not backed up daily, like the Carbonite backup, it would be helpful if the Carbonite restoration was corrupted.  I also periodically copy other important files and programs to the external hard disk.
I would recommend that anyone who has important records on a computer, at a minimum, use an external hard disk which is a very low-cost item.  Carbonite costs a little more, but if you pay three years in advance, the cost-per-year is not too high and is well worth it.

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