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What if your company records were destroyed in a hurricane or other natural disaster? How would you be able to make out your payroll or accurately complete your tax forms? And what about your customer files, noting who did business with your firm in the past and what work was performed? Could your business overcome the loss – or even survive?
The best way is to create an electronic backup set of records and store them in a separate location, according to a bulletin issued last June by the U.S. Internal Revenue Service (IRS).
Among documents for which duplicates should be created are your company’s complete business records plus bank statements, tax returns, and insurance policies. For some companies that keep these records electronically in computers, duplicates can be made and stored at a different location or in a waterproof and fireproof safe or storage box. Some might even put duplicates in cloud storage. For items like bank statements, financial institutions already store these electronically and can recreate them for you on request.
Even if the original records are provided only on paper, they can be scanned into an electronic format. With documents in electronic form, taxpayers can save them to the cloud, download them to a backup storage device, like an external hard drive or USB flash drive, or burn them to a CD or DVD.
There is a school of thought that if you know a hurricane is heading your way you can simply move your business records (including computers) out of the business headquarters to a safer location. This is suggested on the National Federation of Independent Business website. But as we all know, most disasters hit without notice.
Should a disaster actually strike and you need to make claims to your insurance company, business owners can protect themselves by photographing the contents of the business, especially items of higher value. The IRS has a disaster loss workbook (Publication 584) that can instruct you on how to compile a room-by-room list of belongings.
A photographic record can help you prove the market value of items for insurance and casualty loss claims. Photos can be stored with a friend or family member who lives outside the area.
The IRS recommends that businesses draft an emergency plan to be implemented in times of a disaster to get the company up and running again as quickly as possible. Such plans should be reviewed annually, as personal and business situations change over time, as do preparedness needs. When hiring new employees or when a company changes the services it provides, plans should be updated accordingly and employees should be informed of the changes.
Firms that use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.
If disaster strikes, an affected business owner can call 1-866-562-5227 to speak with an IRS specialist trained to handle such issues. Back copies of previously-filed tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506. In addition, transcripts showing most line items on these returns can be ordered on-line, by calling 1-800-908-9946, or by using Form 4506T-EZ (Short Form Request for Individual Tax Return Transcript) or Form 4506-T (Request for Transcript of Tax Return).
One more thing! According to an IRS spokesperson, most business people put off making duplicates of records and updating the duplicates on a regular basis because they feel it is a long-shot at best that disaster will hit them. But that remark struck a chord with this writer. As a boy I earned some spending money delivering brochures for a roofing company, and on handing it to one homeowner, he chuckled, “I don’t need any roof repairs.”
“Save it. A tornado might blow your roof off some day,” I replied as instructed by my employer.
“They don’t have tornados in Chicago,” the man laughed. But nine months later, a tornado did touch down in his vicinity. On watching the story on TV, the first thought I had was, “I hope he saved the brochure!”
As Stephen King wrote, “There’s no harm in hoping for the best as long as you’re prepared for the worst.”