Taxes From A To Z (2019): Z Is For Zip Drive

It’s my annual Taxes from A to Z series! This time, it’s Tax Cuts and Jobs Act (TCJA) style. If you’re wondering whether you can claim house office expenses or whether to deduct a capital loss under the new law, you won’t want to miss a single letter.

Z is for zip drive.

Yes, zip drives still exist. The disk drives – called zip drives for their at-the-time-of-launch blazing fast speed – debuted about 25 years ago as a way for consumers to back-up computer data. With a zip drive, you could easier copy and store files off-site, and it was much faster and stored more data than a compact disk (CD). When CDs hit the market ten years before zip drives, they could typically hold about 10 megabytes of data; zip drives were capable of storing ten times that amount out of the gate.

About ten years later, consumers started moving towards USB-drives, often called flash drives or thumb drives. USB-drives are typically operating system (OS) neutral and don’t require additional software – all you need is a USB port (though those are slowly disappearing). When USB-drives debuted, most stored around 100 megabytes of data but USB-drives can now save nearly two million times that much, or 2 terabytes (that’s not a typo: a terabyte is 1,000,000 times bigger than a megabyte).

Today, consumers use all kinds of methods to store data offsite. External hard drives are in fashion and should last at least a decade. And, of course, cloud storage is increasingly popular, albeit constantly evolving.

(For more on what you need to know about professional services and cloud computing, click here.)

No matter which option you choose, you should have a system for storing your data, especially when it comes to your tax and financial information.

So what should you hang onto? The general rule is that you should hold onto your tax returns and supporting documentation until the statute of limitations runs for filing your tax returns or filing for your tax refund. Supporting documentation for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card, and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.

(You can find out more about record-keeping, including what you can toss here.)

Some taxpayers feel more comfortable hanging onto original papers but to save space, you can scan your records and store them electronically. The IRS has accepted scanned records since 1997, a policy that was memorialized by Rev. Proc. 97–22 (downloads as a pdf). Your scanned or electronic records must be as accurate as your paper records, and you must be able to index, store, preserve, retrieve, and reproduce the documents if asked (produce them in a hard copy form if required).

A back-up system is always a good idea. I have represented clients who have lost records in floods and hurricanes, moves and basement or attic storage gone bad (pests and humidity are real threats to paper). Reconstructing records isn’t always impossible, but it’s generally costly, time-consuming and stressful. Your best bet is to plan ahead and have a storage system that works for you.

Whether you use a zip drive, a flash drive, cloud storage or something else, be sure to keep a back-up of your tax and financial records. You never know when it will come in handy.

For more Taxes From A To Z^TM 2019, check out the rest of the series: