Tax Preparer Insurance

The Insurance Every Tax Preparer Should Have

Tax preparers prepare tax returns for individuals and small businesses – which is not easy task. The United States federal tax code has grown from 400 pages in 1913 to more than 72,000 pages today.

Luckily, there are approximately 1.2 million tax preparers in the U.S. ready to help out. If you are a tax preparer, you have a huge responsibility to your clients to prepare and submit their tax returns on time and ultimately help them avoid a dreaded IRS audit. If you don’t keep up with the ever-changing (and growing) tax code or you make a mistake, you can be sued and face financial devastation of your own.

Tax preparers often work at small firms, and many work out of their homes. Whether you rent or lease office space or you have a home office, you need certain business insurance policies to protect you from the risks you face, including the following:

  • Slips, falls and other injuries at your office
  • Fire, smoke or weather events that cause property damage
  • Lawsuits related to your professional services

Tax Preparer Insurance: Basic Coverage

Tax preparers should work closely with an independent insurance agent to assess their exposure and determine the types of business insurance that they need. Consider the following types of basic business insurance coverage:

  • Business owners policy: A business owners policy (BOP) combines coverage for major property and liability insurance risks. It is ideal for small to medium-sized businesses that need comprehensive, affordable coverage. A BOP contains three primary types of coverage:
    • Property coverage for buildings and their contents, such as computers, calculators, office equipment, and furniture whether it is owned or leased
    • Business interruption coverage, which compensates for lost business income and pays for operating expenses if you must temporarily close following a covered loss (e.g., a building fire)
    • Liability coverage, which pays for claims of bodily injury and property damage to third parties due to your negligence (e.g., a client injury at your office or damage to a client’s property while visiting their home)

You may also want to consider endorsements to your business owners policy or standalone policies that provide the following types of coverage:

  • Computers and media coverage – also called electronic data processing (EDP) insurance – pays for lost data and related lost income if your computers or network are damaged by theft, vandalism, viruses or malware. It may pay for loss of data, loss of software and physical damage to computers or hardware.
  • Cyber liability insurance provides coverage in the event of a data breach involving your business. It helps pay for the cost of notifying affected clients and the cost of public relations and investigations. 

Is Your Home Office Equipment Covered When You Work From Home?

If you work out of your home full-time or even just some of the time, you may be uninsured or underinsured if you think you have coverage under your homeowners insurance policy.

A typical homeowners insurance policy limits coverage for office equipment to around $2,500 – not nearly enough to replace a computer, printer, phones, desk, fax, scanner or other equipment you need for tax preparation. And your homeowners policy does not cover business liability, loss or damage of business records, and damage caused by business interruption.

If you have a home office, you have several options in order to make sure you have appropriate coverage:

  • Endorsement to your homeowners insurance policy. Tax preparers can add an endorsement to a homeowners insurance policy that provides more coverage for the home-based business or home office. This option is viable for one-person businesses without a lot of valuable equipment or business-related visitors. The endorsement typically adds about $2,500 in business equipment coverage as well as some additional liability protection at an affordable price.
  • In-home business/home office insurance. Some insurance companies offer a specialty policy for in-home businesses or home offices. The in-home business policy includes certain features of business insurance policies designed for larger firms but sometimes with lower coverage limits. A typical in-home business policy provides $10,000 of business property coverage and a liability coverage limit typically between $300,000 and $1 million. It may also provide limited coverage for loss of valuable documents, accounts receivable, off-site business property and use of equipment. 
  • Business owners policy: A BOP as described above is often recommended for home-based business owners who need more than $10,000 of business property coverage. It also provides liability coverage for customer injuries and business interruption coverage.

Tax Preparer Errors and Omissions Insurance

The most important coverage you need as a tax preparer is professional liability insurance, or tax preparers errors and omissions (E&O) insurance. Thousands of lawsuits are filed against tax preparers every year. Your E&O policy protects you if you are sued for mistakes in your work. Consider these examples:

  • A client sues you because errors are found in his or her return during an audit.
  • After a tax return is filed, a client must pay IRS penalties and interest due to a mistake in your services.

These types of claims are not typically covered under your general liability insurance. You may also be required to have this type of insurance by your clients or certain associations that you want to join.

Tax preparers E&O insurance provides coverage for costs related to your errors (e.g., IRS penalties and interest due to your mistakes) as well as costs related to your defense in a lawsuit (court costs, attorney fees, settlements and judgments) up to the limits of your policy.

Tax preparers professional liability insurance is generally affordable and is truly invaluable in protecting you from financial devastation. Your premium is based on several factors including but not limited to the following:

  • Size and type of your business
  • Previous claims and losses, where applicable

Remember to update your tax preparers professional liability policy as your business grows and expands over time and you assume greater liability exposures.

Find Tax Preparer Insurance Quotes

As a tax preparer, you know how important it is to have good advisers in your corner. In order to find great quotes on tax preparer business insurance, talk to an independent agent in the Trusted Choice® network. A local, independent insurance agent can work with multiple highly rated insurance companies in order to find the best combination of coverage and price for your small business. Your independent agent will get to know you and your business and will remain your trusted adviser for the long term. Contact an independent agent today.

Now, who's ready to get their insurance problems solved?