The best approach to ease the uncertainty of the upcoming tax season is to be sure that your tax prep business is fully prepared for what’s to come. A little planning now will prevent a lot of headaches when challenges present themselves later. Getting your business insurance and cybersecurity coverage together ahead of time is a smart way to prepare for the next season.
Up the Ante on Cybersecurity
Cybersecurity is a concern in virtually every industry, and tax prep businesses are no exception. Professionals in the field are often unaware of the threat that their individual businesses face and make the false assumption that cybercriminals only focus on large targets.
In reality, cybercriminals and hackers actually prefer smaller targets because they typically have lax or absent cybersecurity measures and are much easier to infiltrate than larger firms. The unavoidable fact remains that tax preparers, along with professionals in every financial field, are vulnerable, and the majority of them are uninformed, unprepared, and unprotected.
Cyber insurance is a simple solution to the far-reaching cybersecurity issues facing the industry. It is a class of business insurance that protects tax preparers and their digital assets. In short, cyber insurance covers your business if you experience a data breach or hack that compromises client information or causes data loss. It is your responsibility to protect sensitive client information and financial records, and most tax preparers take that task very seriously. But hackers can weasel their way into your system and cause tremendous financial and legal damage.
Cyber insurance also covers legal fees and any costs related to recovering data and restoring business operations. For businesses that do experience a data breach, cyber insurance is often the deciding factor determining whether or not the business can recover from a data breach.
Get Your Business Insurance in Order
The threat of a lawsuit can be very real, and a single legal action against your business has the ability to derail the entire operation. Litigation should be a concern for every tax preparer. Luckily, there are several resources and coverages available to tax professionals to protect and insure against costly litigation.
Consider these insurance coverages for your tax prep business to ensure that you are prepared for whatever hiccups the filing seasons throws your way.
Professional Liability insurance, commonly known as Errors and Omissions (E&O) insurance, is the basic form of coverage needed to operate a tax prep business. Many tax pros consider it as an absolute must-have form of coverage. Professional Liability protects you and your business from lawsuits alleging negligence while preparing and filing a return. In most cases, Professional Liability insurance will cover attorney’s fees and judgments. This means you’re covered if a client files suit for mistakes on their return.
General Liability Insurance provides protection for every type of business, not just tax prep businesses, but tax preparers will find it particularly beneficial. General Liability protects businesses from a wide range of claims that can arise in normal operations, such as claims of property damage, personal injury, libel, slander, and defamation.
A Business Owners Policy (BOP) is the way to go if you operate out of a brick and mortar location. A BOP bundles General Liability insurance and Business Property insurance together into one policy. You get the benefits of General Liability plus Business Property insurance covering a rented or owned property and the equipment inside it. A BOP is the preferred combo of coverage for tax prep businesses operating in an office or location visited by employees or clients.
Workers Compensation is a must if you have full or part-time employees or you hire seasonal staff. Workers Comp laws are on the books in every state, and it is mandatory for employers operating in 48 states (TX and OK are optional when certain conditions are met). Still, virtually every employer across the country has this crucial form of coverage. This insurance covers employees if they suffer an injury or become ill while on the job. Accidents do happen, and your employees will receive compensation for missed wages and medical expenses for mishaps that happen at work. It also protects you from lawsuits initiated by employees alleging dangerous or harmful workplace conditions.
The information in this article is up to date for tax year 2021 (taxes filed in 2022).