Papers Away

Tax records weighing you down? Switch to electronic storage.
Magazine Contributor
3 min read

This story appears in the October 2004 . Subscribe »

Are all those paper tax records overwhelming you? If so, now may be the time to switch to electronic tax record keeping. Document management and imaging systems allow you to electronically store tax records and all documents involved in preparing a tax return. Electronic record keeping not only saves time, but also trims expenses by saving on paper and office space, and improves security and 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 own equipment 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 tax records. The fee also covers record storage, help-desk support and technical maintenance. Using a Web-based service means there's no maintenance or support worries, and your equipment expenses are limited to acquiring a scanner.

"In addition, the security of tax records is extremely robust on Web-based services, which includes encryption technology," says Adam Kupperman, director of document management services for Cohn Consulting Group in Roseland, New Jersey, a division of accounting firm J.H. Cohn.

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

Before making the switch to electronic records, seek the advice of a document management consultant. A Web-based service is generally more cost-effective and quicker to implement than the in-house model. With either one, however, the switch involves a fundamental shift in how tax records are kept. Instead of dealing with paper returns and supporting documents, you'll utilize electronic returns and documents to do tax record keeping and preparation.

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

For more on IRS regulations, see IRS Publication 583 and Internal Revenue Bulletin 1997-13, which provide guidance on maintaining 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 tax issues for 17 years.

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