Tax Tips for Disaster Preparedness
July 11, 2017 : Allie Freeland – Contributing Editor
Summer is known for sunshine – and on the opposite side of the spectrum some seriously damaging weather like hurricanes, tornadoes, floods, and even fires. While you may not initially think of it, it’s important to have a plan in place for financial and tax documents in case disaster strikes your home. By taking a few steps prior to the unthinkable happening, you can reduce your stress when it comes time to file insurance claims or rebuild your life after a catastrophic natural disaster.
Here’s a step-by-step guide for disaster preparedness as it relates to financial and tax documents in case of a natural disaster:
Step 1: Set Plans
Nature can strike at any time – so it’s important to create (or review) your family’s emergency plan in case of a natural disaster. First, assess the potential natural disasters you could face in your area of the country. Each type will have a different recommended action for safety. For instance, some disasters require you to evacuate your house, while other natural events will require you to evacuate your house. Then, communicate the plan to everyone in your household. Also, the IRS warns that “personal and business situations change over time, as do preparedness needs. Make plans ahead of time and be sure to practice them.” So, get educated, develop a plan, and communicate the plan to your family or roommates!
Step 2: Make Electronic Copies of Important Tax & Financial Documents
While the technology comes with disadvantages, a huge advantage is the ability to store documents online. If your house is ruined or damaged in a natural disaster, you will not only lose furniture and sentimental belongings, but also documents. So, to plan ahead, duplicate important financial and tax documents, including:
- Tax returns (Up to three years)
- Bank statements
- Insurance policies
- Receipts for deductible expenses
Take hard-copied documents and scan them into an electronic format like a hard drive, flash drive, DVD, CD, or cloud storage. If using a tangible storage device, put the device in a weatherproof safe, or safety deposit box. If using cloud-based storage, remember you can use it anywhere with Internet access. Luckily moving files electronically is not a difficult task – it just requires a bit of time!
[Bonus tip: You can also request copies of previous tax returns and attachments, including Forms W-2, by filing Form 4506, Request for Copy of Tax Return.]
Step 3: Document Your Valuable Items
Take pictures or video of the inside and outside of your home, especially items of higher value. Documenting these items ahead of time will make it easier to claim insurance and tax benefits after a disaster strikes. Include this information on your electronic file along with your tax returns and other financial statements. Use the IRS’s Disaster Loss Workbook (Publication 584) for tips on creating a room-by-room list of belongings. Pictures can help prove the fair-market value of household items, a key item for insurance and casualty loss claims.
In the case of a federally declared disaster zone, impacted people can call 866-562-5227 to speak with an IRS specialist. The IRS keeps an up-to-date list of federally recognized disaster areas. Each federally recognized disaster has different guidelines and types of relief, so be sure to review the materials that are applicable to you.
Remember: In just a few steps, natural disaster preparedness can happen. While it’s unlikely that a catastrophic natural event would ever occur, it’s good peace of mind to be prepared for the worst. Hopefully now you understand the value of documenting valuables and keeping good records of your tax and financial documents, and having a plan in place!