For many people, the days of storing important financial and tax documents in filing cabinets, home safes and even shoeboxes are a thing of the past. These old-fashioned storage solutions are being replaced by more sophisticated digital solutions, which are commonly referred to as electronic filing cabinets.
You could enjoy many benefits by converting your paper-based document storage system to an electronic solution. These include fewer paper documents, better document search capabilities and higher document security.
Types of Electronic Filing Solutions
There are two different types of electronic filing cabinets to choose from: self-hosted and web-based. With the former, you will simply store financial and tax documents on a personal computer, hard drive or portable drive (like a thumb drive). With a web-based solution, your documents will be stored in the cloud.
Cloud-based electronic filing solutions tend to offer the highest level of security. This is because most hosting facilities use sophisticated encryption technology to protect files and data. Web-based storage also tends to be fairly cheap — for example, you can generally store up to 50 gigabytes of data on iCloud for just 99 cents per month.
One of the biggest potential drawbacks to web-based document storage is the risk that your hosting service could go down for a period of time. If this happens, you could temporarily lose access to your documents and files. In reality, though, hosting service outages are pretty rare and they tend to be short-lived when they do occur.
Choosing a self-hosted solution eliminates the risk of losing access to your documents if your hosting service goes down or your Internet connection is lost. But self-hosting document storage presents another risk: computer and hard drive crashes or damage, or loss of a thumb drive. In these scenarios, you could lose all of your documents and files if you haven’t backed them up adequately.
Converting to Electronic Storage
Regardless of which option you choose, the process of converting from a paper-based filing and storage system to an electronic filing cabinet is similar. You’ll use a scanner to convert all of your paper documents into electronic versions, usually PDF files. You can usually shred paper documents after they’ve been digitized, although it might not hurt to hold onto physical copies of 1099, W-2 and K-1 forms.
Some of the biggest benefits of converting to electronic document storage include the following:
- Less reliance on paper — If you’ve ever turned your house upside down looking for an important financial or tax document, you know how easily paper documents can be lost or destroyed. Electronic filing cabinets are also a more environmentally friendly way to store documents.
- Improved document search — You can search for documents stored in an electronic filing cabinet by keyword. This can be much easier than searching through physical filing cabinets with hundreds of documents going back years or even decades.
- Greater document security — You can password protect your electronic filing cabinet to prevent or restrict unauthorized individuals from gaining access to your sensitive documents. Digital documents can also be electronically date-stamped, and you can track edits to the files and monitor who has viewed them and when.
Time to Switch?
If you’re still relying on a paper-based document storage system, it might be time to consider the benefits of switching to an electronic filing cabinet. By making the switch now, you could greatly simplify the process of organizing and storing financial documents in preparation for tax filing next spring.
