Download our PDF Whitepaper: “Securing Sensitive Tax Documents: Best Practices for Compliance, Privacy, and Peace of Mind”
Why Tax Season Poses a Risk for Data Breaches
Tax season is the perfect storm for creating data risk. Just think of the many physical and digital documents you receive with your Social Security number, bank account numbers, income statements, and other personal information. With massive volumes of sensitive information moving among taxpayers, employers, payroll providers, CPAs, and tax preparation firms, the risk of personal information being stolen increases.
Why is that? Numerous factors come into play in how data is used during the tax season, with Yale Information Security (Battles, 2025) reporting that tax-related identity theft has increased by 45% since 2020.
First, the frantic pace of tax season increases the risk of human error. Overworked tax professionals managing compressed deadlines and individuals with limited cybersecurity or data-handling knowledge are more likely to leave tax documents unsecured, use personal devices without proper protection, and dispose of documents incorrectly.
Second, phishing scams increase during tax season. From IRS impersonation emails to fake refund notifications to fraudulent “account verification” requests, there are more easy access points for hackers to take advantage. This is especially true for vulnerable individuals, such as seniors and young people, who may not have the knowledge to identify scams.
While data security should be a part of your routine throughout the entire year, securing sensitive tax documents is especially important.
What the IRS and State Laws Require for Document Retention and Destruction
Whether you are an individual or a business, you are required by law to meet specific requirements for document retention. In this section, we will review the requirements for individuals and companies, federal and state requirements, and the consequences of non-compliance.
Tax Document Retention for Individuals
Individuals are responsible for properly retaining specific tax documentation. Individuals should maintain copies of their filed tax returns, along with all supporting documentation used to prepare them. This typically includes W-2s, 1099s, records of deductible expenses, charitable donation receipts, mortgage interest statements, investment transaction records, and documentation related to credits or adjustments. Essentially, any document that substantiates income, deductions, or credits claimed on a return should be kept for the applicable retention period.
Tax Document Retention for Businesses
It likely comes as no surprise that businesses are subject to more extensive tax recordkeeping and disposal requirements than individuals. While the regulations will vary by company and industry, here is a rough overview (IRS, What kind of records should I keep, 2025):
- Gross receipts records, such as sales invoices, receipts, and deposit information
- Expense documentation, including vendor invoices, canceled checks, and payment confirmations
- Asset records related to purchases, depreciation, improvements, and dispositions
- Bank statements and credit card statements used to support reported activity
- Contracts, leases, and loan agreements
- Copies of filed tax returns and related schedules
For businesses (IRS, IRS, 2025), this list also includes detailed payroll and benefits records, such as employee wage information, withholding calculations, benefits enrollment data, and related tax filings.
How Long Should I Keep Tax Documents?
In most cases, the IRS has three years from the date a return is filed to initiate an audit. This window may be extended under certain circumstances. For example, if substantial income is underreported, the IRS may audit returns for the past six years. (IRS, 2021)
That is why most tax professionals recommend that individuals and businesses keep their tax documents secured for at least seven to ten years. This is due to the Burden of Proof rule, which places responsibility on the individual or business, not the IRS. It is the responsibility to demonstrate that reported income, deductions, and credits are accurate and properly supported. Missing or incomplete records can result in denied deductions, additional taxes owed, penalties, and interest.
However, in cases of suspected fraud, there is no statute of limitations, so the IRS can review returns from any year.
Securing Sensitive Tax Documents Requirements at Federal and State
Seven to ten years is a long time to store anything, which is why properly securing sensitive tax documents and later disposing of them is closely regulated.
At the federal level, tax-related recordkeeping is governed by a combination of IRS requirements and broader consumer data protection regulations. One of the most critical federal regulations governing the destruction of tax-related records is the Federal Trade Commission’s Disposal Rule, issued under the Fair and Accurate Credit Transactions Act (FACTA). Codified in 16 CFR Part 682, this rule requires that consumer report information be disposed of in a manner that makes it unreadable and irretrievable. Essentially, any business that possesses consumer information must take “reasonable measures” to protect against unauthorized access, including tax documents. (Regulations, 2005)
At the state level, regulations further shape how tax records must be retained and managed. Many states align their regulations with federal mandates, while others impose additional obligations. In Washington State, there are specific requirements for securing sensitive tax documents for a set period (5 years for businesses (State, n.d.)) and disposal regulations to minimize the risk of identity theft. It is always wise to review state-specific requirements or consult a local tax professional to ensure you meet all applicable requirements.
The Consequences of Non-Compliance
If you are subject to HIPAA, FACTA, GLBA, or other applicable regulations, you must comply with their requirements. If you don’t, you could face substantial regulatory fines and costly lawsuits. Additionally, you are likely to suffer significant reputational damage, loss of customer trust, and potential identity theft or corporate espionage.
Take, for example, the Morgan Stanley Smith Barney settlement (Management, 2025), where they had to pay $35 million in 2022 for failing to properly destroy customer data. Not only did they face a heavy settlement, but the loss of customer trust was detrimental to their business.
Physical Document Risks: Secure Shredding vs. DIY Methods
Even in the digital era we currently live in, many tax documents still exist physically, especially for households, small businesses, and anyone working with a tax preparer.
What Physical Tax Documents Might I Have?
There is a wide range of physical documents that you may receive in the mail or print to prepare for the tax season. These can include the following:
- W-2 forms (wage and salary statements)
- 1099 forms (NEC, MISC, INT, DIV, B, etc.)
- K-1 statements (partnerships, S corporations, trusts)
- Pension and Social Security benefit statements (SSA-1099)
- Alimony or unemployment income documentation
- Federal and state tax returns
- Receipts for deductible expenses
- Charitable donation receipts
- Medical and healthcare expense documentation
- Education-related expenses (tuition statements, loan interest)
- Childcare and dependent care records
- Mileage logs and travel expense records
- Mortgage interest statements (Form 1098)
- Property tax bills and receipts
- Home improvement and renovation receipts
- Closing documents from real estate transactions
- Records supporting capital gains calculations
- Brokerage statements & capital gains and losses reports
- Retirement account contribution statements
- IRA and 401(k) distribution records
Businesses may also have on hand the following:
- Business income and expense ledgers
- Vendor invoices and receipts
- Payroll and contractor payment records
- Sales tax records
- Equipment purchase and depreciation documentation
It’s not just official forms either. Sensitive tax documentation can also include correspondence with tax authorities, such as state tax notices or audit letters, as well as any drafts, worksheets, or handwritten notes used.
Why Should Paper Be Securely Shredded?
Paper is often overlooked in security strategies, even though it is highly vulnerable. With over 9 million Americans (Rivera, 2025) experiencing identity theft every year, all it takes is throwing a single bank statement in the trash for critical account information to be revealed.
Similarly, physical documents left unprotected in business settings are especially vulnerable to bad actors, whether fellow employees, random visitors, or malicious individuals who exploit known vulnerabilities. According to IBM’s 2025 Cost of a Data Breach Report (IBM, 2025), for the second year in a row, malicious insider attacks had the highest average breach costs among initial threat vectors, at USD 4.92 million.
To prevent these documents from falling into the wrong hands, securely shredding sensitive tax documents is critical.
Why DIY Shredding Isn’t Enough
While some may believe their home or office shredder is sufficient to prevent data theft, it isn’t. Home and office shredders often fail to meet security protocols. They typically offer only strip cuts, which are easy to reassemble. Plus, DIY shredding is time- and labor-intensive, often resulting in piles of “to be shred” boxes that are left vulnerable to passersby.
Additionally, even when documents are shredded by hand at home or in the office, there is no proof that they were shredded. The absence of a documented chain of custody or proof of destruction leaves businesses in a difficult position if they are audited or sued.
Benefits of Professional, NAID AAA-Certified Shredding
Securing sensitive tax documents is best done through professional shredding. NAID AAA-Certified Shredding provides a level of security, accountability, and compliance that in-house solutions cannot match.
To put it simply, NAID AAA Certification (i-SIGMA NAID AAA Certification, n.d.) is the most recognized and rigorous standard in the information destruction industry. By using a shredding company with this certification, you benefit from a highly trained staff and documented chain-of-custody protocols.
Additionally, upon completion of the service, you will be issued a Certificate of Destruction confirming that the documents were destroyed in accordance with regulatory requirements. These certificates serve as critical documentation during audits, investigations, or compliance reviews, helping organizations meet obligations under FACTA, GLBA, HIPAA, and other data protection frameworks.
One-Time Purge vs. Scheduled Shredding
A common follow-up question regarding professional shredding is whether to use one-time purge or scheduled shredding.
Purge shredding is ideal for on-site shredding events that ensure immediate destruction of all your paper documents. This is ideal for tax season cleanouts, office moves, and storage reductions. However, it is vital to keep in mind that there should be security systems in place to protect this paperwork until the shredding event ensues.
Scheduled shredding, on the other hand, is an excellent option for businesses that generate a high volume of sensitive documents and need to meet ongoing compliance requirements. Scheduled shredding companies, such as CI Information Management, provide clients with locked containers to secure the storage of sensitive paper between shredding events.
Digital Data: What to Do with Old Hard Drives and Devices
Securing sensitive tax documents doesn’t only apply to paper documentation. Tax data is often stored on computers, servers, external drives, copier hard drives, and other locations. Unfortunately, simply “deleting” your sensitive tax documents isn’t a destruction method, as the file will continue to exist on the media system, just out of reach for everyday users.
Should media devices that leave an organization’s control or reach end-of-life not be disposed of properly, like what happened with Morgan Stanley Smith Barney (Management, 2025), hackers can easily infiltrate these systems to rediscover these “deleted” files and use them for malicious activities.
NIST 800-88 Guidelines for Media Sanitization
When it comes to digital tax data, simply deleting files or reformatting a device is not enough. (Ramaswamy Chandramouli, 2025) The National Institute of Standards and Technology provides clear guidelines for handling and disposing of digital media containing sensitive information, known as “media sanitization.”
Media sanitization is the process of rendering data on electronic media infeasible to recover for a given level of effort, with that effort level set based on the data’s sensitivity. Today, we will talk about three of those:
Clear: Clearing data is the process of overwriting storage locations or resetting devices to remove data access through standard system functions. This method is suitable only for low-risk situations and is insufficient for tax-related data.
Purge: Purging data is the process of using methods such as cryptographic erasure or targeted overwriting that render data unrecoverable even with laboratory-level techniques. This technique leaves the media device usable, but for tax purposes, it requires strict validation to be considered a valid method.
Destruction: Destruction is considered the gold standard for media sanitization. Destruction physically damages the media so that data recovery is impossible. Methods include disintegrating, incinerating, melting, pulverizing, and shredding. For devices containing sensitive tax information, destruction is the recommended approach when equipment reaches end-of-life or leaves organizational control.
How CI Information Management Helps You Stay Protected
Effectively securing sensitive tax documents requires more than good intentions; it takes active participation with trusted companies known for their reliable systems and documented processes. At CI Information Management, we support both individuals and businesses with data destruction, helping ensure that tax-related records are handled securely, compliantly, and responsibly. To do this, we offer both document and media destruction services.
Document Shredding Services
For physical documents, clients can choose from a variety of services. Our individual clients who want to shred personal, self-employment, or work-from-home documents often choose our residential shredding services or our Seal N’ Shred Bag. For residential pickups, we require a 2-bin minimum, but smaller jobs are perfect for our Seal N’ Shred Bag, a prepaid bag that holds up to 30 lbs. of documents.
Our business clients can choose between on-site shredding, scheduled shredding programs, or one-time purge cleanouts, depending on volume, frequency, and compliance needs. Many of our larger businesses choose on-site shredding, which destroys documents at the client’s location, providing immediate assurance and eliminating unnecessary handling.
Media Destruction Services
As we discussed above, tax documents aren’t solely confined to paper products. That is why CI Information Management also provides certified hard drive and digital media destruction services. Our secure media destruction services are the safest and most effective way to destroy a wide range of digital and electronic media, including:
- Optical media: CDs and CD-ROMs, DVDs and DVD-ROMs, and Blu-ray.
- Zip disks: Zip disks of sizes 100 MB, 250 MB, and larger.
- Magnetic backup tapes: DLT, mini cartridges, and more.
- Floppy Disks: Sized 3.5 inch, 5.25 inch, and others
- Storage devices: Flash drives, hard drives, solid-state drives
- Media Devices: Laptops, phones, tablets, etc.
Why Individuals and Businesses Choose CI Information Management
CI Information Management is committed to clarity and accountability. Our clients receive transparent pricing, straightforward service agreements, and precise documentation (including Certificates of Destruction) to support audit readiness and regulatory compliance. With a local team, we provide personalized support and expert recommendations tailored to your business’s unique needs.
Beyond security and compliance, CI Information Management operates as a social enterprise, creating meaningful employment opportunities for individuals with disabilities and other life barriers. Additionally, we are dedicated to our sustainability principles; in 2024, we recycled 4,203,339 pounds of paper.
By partnering with CI Information Management, clients are not only securing sensitive tax documents but also supporting a mission-driven organization that delivers measurable community and green impact alongside professional-grade information security.
Action Steps for Tax Season Security
As we approach the upcoming tax season, taking action in securing sensitive tax documents is something that needs to be done as one goes. Let us provide you with an individual and business checklist to take with you on our information security mission.
Download a PDF Household Checklist to help you secure your sensitive tax documents.
Download a PDF Business Checklist on Securing Sensitive Tax Documents for your business.
Protecting What Matters Most – The Data That Fuels the World
Securing sensitive tax documents may seem like a chore, but it is critical to protecting against data breaches. No one wants to face the consequences that come with failing to do so.
If you are looking for a trusted partner to handle securing sensitive tax documents for your household or business, we at CI Information Management are here to help. Request a quote with us today to learn more.
