From flooding and wildfires to severe storms and tornadoes, your state has most likely experienced a recent natural disaster.
After the initial shock, the first priority in disaster recovery is safety. After cleanup has begun and you take stock of the work at hand, insurance and financial issues take a close second.
As a tax preparer, you likely educate your clients about the importance of good organization and recordkeeping. While some have taken your advice and are prepared for disasters, others have not. When disaster does strike, you’ll need to be prepared to help both types of clients.
Help your clients recover lost records with these tips:
- Proof of damage. Photograph or videotape personal and business property to help establish the amount of destruction. Locate and collect any “before-the-disaster” photos. Review online photo albums and social networking websites and ask friends, relatives and neighbors for photos of damaged property.
- Tax documents. If you prepared their taxes last year, inform your client of what information is stored and what you can duplicate for their personal records. Records can also be obtained from past preparers by completing IRS Form 4506 (PDF) (for a $57.00 fee) or by calling the Internal Revenue Service (IRS) at 800-829-3676. When disasters are federally declared, the IRS typically waives the $57 fee and will expedite copies if needed for insurance purposes.
- Personal and business property documents. The title company may have copies of escrow papers. If there is a mortgage on the property, the financial institution should also have a settlement statement and mortgage copy on file. Real estate is valued by the county assessor’s office and the insurance company that insures the property. An appraiser can also provide comparable properties to help establish a home value.
- Business inventory. Use the depreciation list in last year’s tax return to help reconstruct assets. Business clients can also request copies of invoices from suppliers over the past year to aid in reconstructing assets.
- Financial statements. Request copies of bank and financial statements for each open account. For business clients, the deposits will closely reflect sales for any given period if sales information has been lost.
- Vehicle documents. Call the dealer and ask for a copy of the purchase contract. If the vehicle has had a lien, the bank or institution may also have paperwork. Sources such as Kelley Blue Book and NADA.com can be a good source for determining fair market value.
- Recreating a mileage log. You may not be able to put together an exact mileage log, but reconstructing what you can shows good faith. Use bank and credit card statements to review where your client incurred expenses. Your client’s daily calendar may provide reminders about their whereabouts and expenses. If they are in the same line of work and their trips are repetitive, they may be able to create a sample monthly log that can be used to average out the year.
Learn more about record reconstruction and disaster assistance on the following IRS page: FAQs for Disaster Victims.
If your clients haven’t experienced a natural disaster, encourage them to prepare now with these tips:
- Individuals and businesses alike should video or photograph all valuables and equipment.
- Take advantage of electronic recordkeeping. Save documents and bank statements received by e-mail. Scan paper documents and save in an electronic format. Back up all electronic files and store copies in at least two secure locations.
- Like homeowners, business clients should create and review an emergency plan annually. Safety is the first issue. Where can they seek shelter and what types of hazards are possible? A communication plan for employees, insurance agents and tax preparers should be created. Back up computer data and employee documentation regularly.
- Have a basic emergency supply kit at your place of residence and business:
- One gallon of water per person per day for three days
- Non-perishable food for three days
- First-aid kit
- Flashlight and batteries
- Cell phone with chargers or inverter
- Personal sanitation supplies
Anyone can experience a natural disaster, including you. Follow your own advice for both personal and business recordkeeping and inventory management. Professional tax software such as TaxACT Preparer’s Enterprise Editions include online data backup to ensure your clients’ data remains secure and accessible at all times.