Are all those paper tax records overwhelming you? If so, now maybe the time to switch to electronic tax record keeping. Documentmanagement and imaging systems allow you to electronically storetax records and all documents involved in preparing a tax return.Electronic record keeping not only saves time, but also trimsexpenses by saving on paper and office space, and improves securityand access to documents.

You have two options when going paperless with your tax records.You can choose a Web-based service, or you can purchase your ownequipment and use an in-house system.

With a Web-based service, you pay a monthly subscription fee,which allows employees to scan tax records into a computer daily,weekly or whenever necessary, and search and retrieve those taxrecords. The fee also covers record storage, help-desk support andtechnical maintenance. Using a Web-based service means there’sno maintenance or support worries, and your equipment expenses arelimited to acquiring a scanner.

“In addition, the security of tax records is extremelyrobust on Web-based services, which includes encryptiontechnology,” says Adam Kupperman, director of documentmanagement services for Cohn Consulting Group in Roseland, NewJersey, a division of accounting firm J.H. Cohn.

Setting up an in-house system is more involved. You not onlyhave to purchase or lease a scanner, but also buy the necessarycomputer hardware and software from a document management vendor.Plus, you are responsible for maintenance of the record-keepingsystem.

Before making the switch to electronic records, seek the adviceof a document management consultant. A Web-based service isgenerally more cost-effective and quicker to implement than thein-house model. With either one, however, the switch involves afundamental shift in how tax records are kept. Instead of dealingwith paper returns and supporting documents, you’ll utilizeelectronic returns and documents to do tax record keeping andpreparation.

The IRS does have its say about electronic tax records storage.Namely, if you use a computerized system, you must be able toproduce sufficient legible records to support and verify entriesmade on your return as well as determine your correct taxliability. In addition, these electronic records should be able tobe reviewed by the IRS during the course of a return examination,such as an audit.

For more on IRS regulations, see IRS Publication 583 andInternal Revenue Bulletin 1997-13, which provide guidance onmaintaining books and records using an electronic storage system.Both can be found at www.irs.gov.

Great Falls, Virginia, writer Joan Szabo has reported on taxissues for 17 years.