Understanding Tax Preparer Liability Insurance
As a tax preparer, you know the importance of accuracy and reliability when it comes to filing taxes for your clients. But what happens if an error or omission on your part leads to a hefty fee for your client? That’s where tax preparer liability insurance comes into play.
What Is Tax Preparer Errors and Omissions Insurance?
Tax preparer liability insurance is a type of professional liability insurance that provides protection for professional tax preparers in the event of a lawsuit regarding errors or omissions made while preparing tax returns. It typically covers legal costs and judgments related to claims and income lost due to a resulting business interruption. However, claims of bodily injury, property damage, or false advertising are not covered. Tax preparers, bookkeepers, accountants, clerks, auditors, and bankers can benefit from this type of policy. A couple examples when tax preparer liability insurance would come in handy include:
- If a client sues you after an audit reveals errors were made in his or her return.
- After a tax return is filed, a client is forced to pay IRS penalties and interest due to a mistake in your services.
Tax Preparer Liability Insurance Policy Options
Tax preparer liability insurance generally includes two main types of coverage: professional liability and errors and omissions (E&O). Professional liability coverage protects against losses from the performance or providing of services related to taxes and accounting. On the other hand, errors and omissions insurance for tax professionals safeguards against claims made by clients for mistakes or oversights that could lead to financial loss or damage. Additionally, some policies also include cyber liability coverage, which helps protect businesses from data breaches caused by hackers or malicious software attacks.
Professional Liability Insurance for Accounting Professionals
Professional liability insurance is essential for those who provide advice, services or products related to taxes and accounting. A tax preparer liability insurance policy helps protect you from claims that your work wasn’t up to par and resulted in financial loss for your client. If a client sues you based on this type of claim, your professional liability insurance would cover any legal fees and judgments related to it. Generally speaking, professional liability coverage will pay out up to the policy limits if a successful claim is made against you.
Errors and Omissions Insurance for Tax Professionals
E&O insurance protects against claims made by clients due to mistakes or oversights that could lead to financial loss or damage. For tax preparation businesses, financial loss or damage could include anything from an incorrect filing status reported on a tax return to a major miscalculation resulting in an underpayment of IRS taxes owed by a client. In most cases, E&O policies will cover legal fees associated with defending yourself against such claims and any judgments awarded against you if found liable in court.
Cyber Liability Insurance for Tax Preparation Businesses
Cyber liability insurance is designed to help protect businesses from data breaches caused by hackers or malicious software attacks targeting computer networks storing sensitive information, such as customer data and financial records. While most policies won’t cover losses directly associated with such events, like stolen funds, they may provide coverage for things like notification costs, credit monitoring expenses for affected customers, attorney fees, public relations efforts, and more. Cyber liability coverage can be especially important for anyone operating online through websites or e-commerce platforms containing sensitive customer information, including many tax preparation services offered today.
Business Owners Policies for Tax Preparers
If you rent or own workspace or have client contracts that require general liability insurance, you’ll likely need a Business Owner’s Policy (BOP). A BOP can help your business if:
- You have a physical location.
- There’s a possibility of you getting sued.
- You have assets that could get stolen or damaged.
Many tax preparation businesses secure a BOP policy along with tax preparer liability insurance to ensure all their bases are covered. E&O covers you in the event of a lawsuit due to mistakes or oversights that could lead to financial loss or damage. With a BOP policy, your commercial property is covered after a loss event, such as a theft or fire. It also pays for lost profits that you need to cover necessary expenses, like employee wages and rent, and includes general liability coverage. As a business owner and tax preparer, it’s a good idea to consider securing a BOP and E&O policy to ensure your business has complete protection.
Tax Preparer Insurance Cost
Tax preparer insurance costs vary depending on a wide range of factors:
- Years in business
- Size/scope of operations
- Property and equipment
- Deductible amount
- Claims history
- Number of employees
Tax preparer liability insurance typically falls within an affordable range when compared with other forms of business-related insurance, like general liability or workers’ compensation. Partner with an experienced agency who works with a wide range of carriers to get the best coverage at a competitive rate.
At Southpoint Insurance, we work with only the best insurance carriers to ensure you get top-quality tax preparer liability insurance.
Get Tax Preparer Liability Insurance at an Affordable Cost
At Southpoint Insurance, we understand the importance of having the right kind of policy to protect yourself and your business. That’s why we offer tax preparer liability insurance at an affordable cost. With our coverage and wide range of carrier partners, you can rest easy knowing you’re protected from potential liabilities that may arise during the course of your professional duties. Contact us today to get an E&O insurance quote.