How to Manage Tax Related Documents Securely

Tax day (April 15, 2014) is upon us. With less than two months until we need to pay up, there are three important questions you should be asking yourself about the security of your client’s financial data:

  1. How long are you storing your files?
  2. Are you shredding paper records securely?
  3. Is cloud storage really a solution, or should I be cautious?

If you can’t answer these questions without hesitation, maybe it’s time we reviewed what it takes to keep your financial data secure.

Shelf Life of Financial Files

Catherine M. Williams, vice president for financial literacy at the credit-counseling firm Money Management International, explains that there are two main reasons to keep financial records.

“It’s either for backup to a tax issue or for proof that you did something like make a payment,” Williams said to the New York Times.

She’s right. According to the I.R.S website, the tax organization requires that individuals be able to produce records proving any income, deductions or credit claimed for at least three years from the date of a return. The I.R.S. also requires that individuals be able to produce such records for six years if they fail to report income that is more than 25 percent of their gross income. There is no statute of limitation for failure to file or tax fraud.

“My recommendation would be never throw away copies of your tax returns and checks made out to the government — anything else, I would say keep for at least six years,” Jude Coard, a tax partner at accounting firm Berdon L.L.P, said to The New York Times.

We know what you’re thinking: How are you going to store all those financial files? It’s worth freeing up the extra office space alone to investigate off-site record storage.

Secure Shredding

It might be a good idea to be very careful when deciding what stays and what should be shredded. Luckily for you, Corodata has its own list of the do’s and don’ts of shredding. To get you started, here’s a short list of old documents to shred:

  • price lists
  • proposals
  • invoices
  • customer information
  • customer lists and database printouts
  • credit card receipts
  • payroll records
  • financial statements

Shredding should be a regular habit for office file management, especially when identity thefts are rampant.

Risks of Cloud Storage with Financial Data

It’s this concern with security that’s forefront of a decision maker’s mind these days, and many of them are turning to cloud computing as an alluring alternative to paper file management. But there are three big risks associated with cloud computing: security, data loss and unauthorized access.

In a Financial Times article, Janet Stiven, a Chicago-based business attorney and member of law firm Dykema Gossett, mentioned that it is particularly important to remember that “risks for businesses abound in the [new IT] environment, as many cloud services and mobile applications were designed for the individual consumer in mind, not the enterprise.”

Evaluate Off-Site Record Storage

It’s important for companies to ask themselves these 10 questions while looking for records management solutions, and ask for expert advice when navigating the uncertainties of financial record storage.

10 must ask questions