The Big Picture

Kelly Phillips Erb, Forbes

The rains and extreme weather continues to pound parts of the country this week. In the past, I have posted about taking steps to protect your personal documents and financial records in the event of a weather related disaster. But what about your business?

When it comes to business,

  1. Scan, scan, scan. Businesses deal with so much paper. Scanning and digitally archiving files can be stored and accessed easily – great for tax purposes. It may also save storage space (you should see our stacks and stacks of files – and we do scan) as well as offer piece of mind.
  2. Have a back-up plan. If you scan, make sure those records are in at least two places. Consider an offsite space for storage records – and don’t forget about the cloud!
  3. Ask about virus protection software. The best financial and backup system in the world is useless if it’s destroyed or compromised. Virus protection software can help safeguard your documents – but don’t allow employees to add software willy-nilly. Consult with a tech professional who can offer practical advice on the best software for your needs.
  4. Pay attention to the statute of limitations. These are not necessarily the same as those for personal tax returns. For most excise, income and payroll tax returns, the statute is three years after the due date of the return, or three years after the return was actually filed, whichever is later: there is one quirk in the language for forms 941 which specifically sets the statute at three years from April 15 of the year following the year for which the return was due or 3 years after the date the return was actually filed, whichever is later; the same language applies to forms 943, 944 and 945 (together with forms 941, they represent the FICA and withholding series).
  5. Remember that not all tax forms are created the same. Employee benefits forms vary since the rules and deadlines themselves vary: generally, the statute is 3 years if the information is disclosed and six years if it is not disclosed on the form. Keep in mind that while the filing of the form 5330 (Excise Taxes Related to Employee Benefit Plan) generally starts the statute of limitations for excise taxes relating to benefits, that is not the case for section 4975 excise tax for prohibited transactions – the statute for those starts running with the filing of the form 5500 (annual report).
  6. Don’t get hung up on the statute of limitations. While you shouldn’t save absolutely everything, that doesn’t mean your documents should go to the shredder on the day that the statute of limitations for tax purposes has come and gone. Remember that there may be other issues – like employment and human relations – that have their own statute of limitations. Be sure that you review any legal requirements for retaining those files before tossing them. Ditto for career-specific rules like those that govern lawyers, accountants, doctors and the like: you may be subject to professional rules for retaining and/or disposing of client files.
  7. Train your employees. Figure out which of your records should be saved ahead of time – that is, before the question comes up (again, pay attention to those statute of limitations). What do you do with canceled checks? Credit card statements? Bank statements? Old tax forms? Payroll reports? Create a system and a schedule for shredding, filing and scanning, train your employees how to follow it and stick to it.
  8. Be flexible. While paying attention to a system is important, it’s also smart to revisit your plan on a regular basis to make sure that it still makes sense. Things change. Employees leave. Clients come and go. Businesses expand and shrink. Technology changes at breakneck speed. Tax laws and regulations – including employer reporting and payment obligations (think Health Care Act, for example) – are constantly evolving. Pay attention to the details and don’t get stuck in a dangerous rut.
  9. Don’t be pound foolish. If you take away just one bit of information, keep this one in your pocket: hire professionals. Don’t leave the integrity of your tax and financial resources up to employees who might transition out of your company or convince yourself that you might get to taking care of the records yourself “some day.” As a business owner, the two folks you should always have on hand: a good tax professional (accountant, lawyer or reliable tax preparer) and a payroll company. Payroll issues get more businesses into trouble than any other single tax issue I see with respect to corporate taxes. Payroll companies are not expensive and worth every penny – get a good one and use it.

And since it always makes sense to ask the experts, I tapped into the wisdom of a few folks who I asked them for their best practice tips about safeguarding documents – from how to choose a cloud storage space to how best to file your documents on paper to the best place to store backups – to help business owners protect their financial information. Here’s what those folks had to say:

Sara A. Austin, attorney at the Austin Law Firm LLC:

"Don’t wait until the last minute. I keep my records year-round, as things occur (income and expense), entering it all monthly in PCLaw. (Unsure how I could otherwise bill clients for any recoverable expenses …). And I keep receipts in a hard file system, by subcategory. Then at year-end all I have to do is print out a P&L and Balance Sheet and whatever else my accountant needs and voila! If he needs supporting receipts I have them."

Nicole Black, Lawyer, Author and Director at MyCase, a cloud-based law practice management system (@nikiblack on Twitter):

"It is important to take reasonable steps to ensure that confidential client data remains safe and secure. In other words, you must confirm that the third parties to whom you entrust your data and who have access to the computer servers that house your data meet the same security obligations as any other third party to whom you entrust confidential client files, keeping in mind that absolute security is an impossibility. The best way to ensure that you understand how a cloud computing vendor will safeguard your data is to ask the right questions. Make sure that your cloud-computing vendor’s responses are satisfactory. Negotiate an agreement that protects both your interests and your clients’ data."

Andrea Cannavina, CEO, LegalTypist, Inc. (@LegalTypist on Twitter):

"All cloud service providers should have their servers physically located within the same country as the user.  This means everyone is playing by the same rules.

"Fireproof safes are not heat proof.  This means if you copy all documents/files to disc and put in the safe, chances are it will melt if there is a fire. Better to store paper items within fireproof safes."

Jody Padar, CPA at (@JodyPadarCPA on Twitter):

Get your information to the cloud…going beyond just storage it positively fundamentally changes how you will work with your CPA.

Many CPAs have cloud storage as part of their services. Also, products such as Freshbooks,, Xero, etc., will keep the detail information connected at the transaction level. You can always annually backup your cloud service…but realistically it’s a way better place to keep your tax documents then a Tupperware Bin in your basement.

Ben Schorr, CEO – Roland Schorr & Tower (@bschorr on Twitter):

When choosing a cloud storage space for key documents or data, make sure that it has a way for you to get/keep a local copy of your documents or data anytime you want to. As handy as cloud storage is you don’t want to be at the mercy of your cloud storage provider if there’s ever a problem. It’s your data, you should be able to have a copy of it too.

If you have confidential documents stored digitally make sure they’re encrypted and secured. Never ceases to amaze me how many people store confidential data in a network folder anybody in their firm can access at will or on an unencrypted flash drive or laptop. Permissions and encryption are not difficult and they’re a lot easier than dealing with the fallout of having your confidential data in the hands of people who should not have it.

And one last tip: The IRS has a Disaster Hotline at 1.866.563.5227 to help people with tax issues after a disaster. If you have questions or need more help, give them a call!