Traditionally, important financial and tax documents have been kept in paper form in a filing cabinet, fireproof safe or bank safe deposit box. But in the digital age, electronic document storage — also sometimes referred to as “electronic filing cabinets” — is gaining in popularity.

Pluses of electronic storage

There are many potential benefits to electronic document storage. Perhaps the biggest is a reduction in the amount of paper that must be sorted, organized and stored manually. Also, you can conduct a keyword search for documents that reside in an electronic filing cabinet. That’s, of course, better than manually searching for paper documents that may or may not have been filed correctly.

Documents stored digitally tend to be more secure than paper documents. Electronic filing cabinets can be password protected. And they aren’t as vulnerable to damage or destruction by floods, fire or other disasters — especially when you back them up on the Cloud.

In addition, electronic documents can be digitally date-stamped, which helps ensure that you’re accessing the most recent versions. You can easily track edits to electronic files, monitor who’s been viewing them and restrict access to sensitive documents.

Electronic filing cabinets usually work in tandem with a scanner, which is used to convert paper documents into digital versions such as PDF files. Most paper documents can be shredded once they’ve been digitized. However, you may want to retain paper versions of estate planning documents such as wills and trusts.

Web-based or self-hosted?

There are two main types of electronic document storage: Web-based systems and self-hosted systems. Web-based systems use the internet to store documents in the cloud. Self-hosted systems store documents on a computer, external hard drive or portable drive (such as a USB thumb drive) kept in the home or office. Each option has advantages and drawbacks.

Web-based systems tend to be highly secure — data storage facilities typically use the most sophisticated encryption technologies to keep your files safe. Cloud storage also is inexpensive. For example, up to 50 gigabytes of data can be stored on iCloud for 99 cents per month. But, if your hosting service is interrupted for any reason, you could lose access to your files for a period.

With a self-hosted system, you’ll be responsible for storing documents on your own computer or hard drive. This eliminates the chance that a lost internet connection or service interruption at your host could restrict access to your files. But you also run the risks of:

A computer crash,

Computer or hard drive damage due to a fire or flood, or

Loss of a flash drive.

If any of these happen, all your files could be lost if they’re not backed up properly. Regular, periodic backups are essential.

Whether self-hosted or web-based, it’s also a good idea to be sure that at least one other person knows how to access your information. That way it’ll still be available even if you become incapacitated or are otherwise unable to retrieve the data.

Efficiency beckons

If you still save hard copies of some documents, consider going fully electronic. You’re likely to feel less overwhelmed by the task of organizing and storing all that paper. Not only might this be a more efficient storage solution, but a more environmentally friendly one as well.

Norm Grill, CPA, (N.Grill@GRILL1.com) is managing partner of Grill & Partners, LLC, (www.GRILL1.com) certified public accountants and advisors to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien, 203 254.3880.