Preparing taxes is one of the most complicated business activities. No wonder some business owners prefer to outsource tax preparation services to experts in the field.
Tax preparers ensure clients' tax returns are accurate and in line with the dynamic tax laws.
However, even the most seasoned and meticulous tax experts are prone to errors or skipping important information that could lead to loss of money for the client, increasing customer turnover rates.
While praying for the best, we should always prepare our minds for the worst. Unfortunately, errors and omissions can happen at any time, leading to legal disputes and lawsuits.
Therefore, this is where errors and omissions insurance for tax purposes comes in. Errors and omissions insurance for tax preparers will protect your business from financial losses from negligence, errors, or omissions in professional services.
This article explains the meaning of errors and omissions insurance for tax preparers, how it works, what it covers, and why your tax preparation business needs it. Furthermore, we will explain the factors to consider when choosing this policy.
What Is Errors & Omissions Insurance?
Errors and omissions (E&O) insurance, also known as professional liability insurance, is a type of professional liability insurance that covers businesses or individuals who provide professional services or advice to clients. The average cost of E&O insurance for small businesses is $65 per month or $800 per year.
What is the Size of the E&O Insurance Market?
According to research by MarketStance, Middletown, Connecticut, the professional E&O market accounts for $11.83 billion in insurance premiums (excluding medical malpractice). Small and midsized businesses dominate the market, making them prime candidates for independent agents.
Is E&O Insurance Necessary?
The simple answer to this question is Yes! We are not perfect and sometimes make mistakes. Hence, this policy will cover against claims of errors and omissions from clients for your professional services.
Professionals in different industries who need E&O insurance include accountants, lawyers, financial advisors, and many more.
For instance, a client who got neglecting legal advice from a lawyer, which resulted in a financial loss, can sue the lawyer. Also, a client can sue a financial advisor for giving wrong investment advice. The E&O insurance in Texas can assist in covering the legal fees, settlements, and damages in such circumstances.
What is Errors And Omissions Insurance For Tax Preparers?
Errors and omissions (E&O) insurance for tax preparers is a type of professional liability insurance that provides coverage for tax preparers and their businesses if a mistake, error, or omission happens in their professional services.
Tax preparers ensure clients' tax returns are accurate and comply with tax laws and regulations. However, mistakes or oversights can occur, even with the most diligent and experienced tax preparers. In such cases, tax preparer E&O Insurance can help to protect them from potential financial liabilities and legal disputes.
E&O insurance for tax preparers covers legal fees, settlements, and damages that may result from claims of professional negligence, errors, or omissions.
For example, a client can sue a tax preparer for providing incorrect or incomplete information on their tax return, resulting in financial losses or penalties. In such cases, tax preparer E&O Insurance can help to cover the legal fees, settlements, and damages. E&O insurance policies vary depending on business size, needs, and risk.
What Does Errors And Omissions Insurance For Tax Preparers Cover?
E&O insurance for tax preparers typically covers claims of professional negligence, errors, or omissions during filing. However, it also provides cover for the following:
1. Professional errors or omissions
E&O insurance covers claims arising from errors or omissions during tax preparation. For example, if you prepare a client's tax return with incorrect information, resulting in financial losses or penalties, E&O insurance can cover the costs of legal fees, settlements, and damages.
2. Incorrect tax advice
If a tax preparer offers wrong advice to a client concerning tax filing or other tax-related matters, resulting in financial loss, the E&O insurance policy may provide coverage.
3. Failure to file tax returns
The E&O insurance policy may offer coverage if a tax professional fails to file a client's tax return or files it after the deadline, leading to financial losses or other tax-related penalties.
4. Failure to comply with tax laws
Tax preparers must ensure client returns comply with tax laws. In the case where a client claims you broke these rules and he suffered financial damages or penalties, E&O insurance can cover legal fees, settlements, and other damages.
5. Cyber liability
Many tax preparers store sensitive client information, such as SS numbers, bank details, and other personal information. Therefore, E&O insurance can cover claims related to cyber liability, including data breaches or theft of sensitive information.
6. Legal defense costs
Nobody wants lawsuits. The cost of legal defense is high. E&O insurance helps cover legal defense costs in lawsuits from clients.
Remember that E&O insurance for tax preparers does not cover intentional or criminal acts. Some policies may have coverage limitations or exclusions. Therefore, review the policy carefully to understand coverage limitations.
Benefits of Errors and Omissions Insurance for tax Preparers
E&O insurance for tax preparers has several benefits, including:
- Financial protection against risks: E&O insurance provides financial protection against lawsuits. It covers legal fees, settlement, and damages.
- Offers professional credibility: E&O insurance can help tax preparers demonstrate commitment to providing high-quality services. Therefore, helps build trust with existing and potential clients.
- Offers peace of Mind: Knowing that the best insurance policy covers your business is the best peace of mind. Tax preparers can focus on providing high-quality services without worrying about the consequences of errors.
- Improved Risk Management: E&O insurance helps tax preparers improve risk management practices. Therefore, it helps them reduce the risk of errors and improve the quality of services.
- Creates competitive advantage: The E&O insurance offers tax prepares competitive advantage over those without such coverage. It might be particularly crucial in the competitive tax preparation market, where clients prefer to engage tax preparers with E&O insurance coverage.
- It offers customizable coverage: You can customize your E&O insurance policies to meet your business needs, including cover against data breaches, cyber liability, etc.
Factors To Consider When Choosing E&O insurance For Tax Preparers
Consider the following factors when choosing E&O insurance For Tax Preparers:
- The coverage limits of policy: Consider the coverage you need to protect your business against potential liability claims.
- Policy Exclusions: Check for policy exclusions to ensure the coverage is adequate for your business needs.
- The deductibles: Determine the deductible amount you can pay in case of a claim.
- Premiums: Compare premiums from different insurance providers to ensure you have the best deal.
- Claims Process: Understand the claims process for the insurance provider you choose.
- Reputation of the Insurer: Choose an insurer with a good reputation for customer service, financial stability, and claims handling.
- Insurer's Experience: Look for an insurer that has experience providing E&O insurance for tax preparers.
- Additional Coverages: Consider whether you need extra coverages such as cyber liability or data breach insurance.
- Policy Terms: Read the policy terms carefully to ensure you understand the coverage, the exclusions, and other terms and conditions of service.
- Professional Associations: Consider joining a professional association for tax preparers that offers group insurance policies.
No matter how good you think you are at your job, you can make minor mistakes at one point. Therefore, to protect your business from financial liabilities arising from professional errors or omissions, you should consider errors and omissions (E&O) insurance for tax preparers.
While it is your duty as a tax preparer to offer your clients the right services, mistakes can still occur. Buying the right E&O insurance can give you financial security and peace of mind, allowing you to concentrate on your core business activities.
Consider an E&O insurance policy that meets your business needs, including cyber liability. Investing in E&O insurance can improve credibility, compliance, and financial protection.
Don't wait until it's too late – take action now. Protect your business with errors and omissions insurance for tax preparers, and you won't regret what you did.