Tax Preparer Insurance

Usually, errors and omissions or E&O insurance for tax preparers isn’t required by state law. However, certain clients, employers, or local jurisdictions may require it before allowing you to work with them.

Even when it’s not mandatory, it’s a smart addition to your risk management plan. This type of coverage—also called professional indemnity insurance or professional liability insurance—can help protect your business from the financial fallout of costly lawsuits.

An E&O policy can step in when a client claims you made a mistake, missed a deadline, or gave bad advice that caused them a financial loss. For tax preparers, common professional negligence claims include:

• Filing errors, such as miscalculating deductions or credits, leading to penalties or back taxes for the client.
• Missed deadlines like failing to file on time, resulting in IRS fines or interest charges.
• Incorrect tax advice, such as providing guidance that results in a client overpaying or underpaying their taxes.
• Clerical mistakes, including entering incorrect Social Security numbers, income amounts, or other key details.

Without coverage, defending these claims (even if you’re not at fault) can be expensive. E&O insurance can help pay for defense costs, settlements, and court judgments, allowing you to keep your focus on serving clients instead of worrying about legal bills.

Yes. Cyber insurance for tax preparers is more important than ever.

Tax preparation professionals handle highly sensitive financial data and personally identifiable information (PII) for their clients. This makes them a prime target for hackers, phishing scams, and other cyber threats. Even a single breach can lead to costly legal requirements, damaged client trust, and lost business opportunities.

Cyber insurance can help protect your business from these risks. First-party cyber insurance covers the direct costs your business faces after a cyberattack or data breach, such as:

• Data recovery and system repair: Restoring files, software, and devices after a hack or ransomware attack.
• Breach notification costs: Covering the expense of notifying affected clients, as required by state data breach laws.
• Credit monitoring services: Offering protection to clients whose personal data may have been compromised.
• Business interruption: Compensating you for lost income if your systems are down due to a cyber event.

In addition to helping you recover from an incident, having cyber coverage can also help attract new clients to your bookkeeping or tax preparation business who value knowing their sensitive information is protected.

Beyond the essentials like E&O and cyber policies, tax professionals should consider these additional insurance products under the umbrella of enrolled agent insurance:

• Surety bonds: This type of bond guarantees you’ll fulfill your contractual obligations. If you fail to do so, the bond insurer compensates your client up to the coverage limit, though you'll be expected to repay the amount to the bond company. This is sometimes required by state licensing bodies or client contracts, and it helps reassure clients you’ll complete the job as promised.
• Fidelity bonds: Sometimes referred to as employee dishonesty bonds, fidelity bonds (a type of surety bond) protect against theft or fraud by employees. Any business with employees who handle sensitive financial information could benefit from carrying one.
• Business income insurance: Also known as business interruption insurance, this coverage helps offset lost income if your tax preparation business is forced to halt operations due to a covered incident, like a fire, flood, or major property loss. It’s crucial for keeping your cash flow stable during unexpected downtime.
• Employment practices liability insurance (EPLI): If you have employees, EPLI protects against claims like discrimination, wrongful termination, harassment, or retaliation. It typically covers legal defense and settlement costs, and can be added standalone or as an endorsement to a general liability policy or a BOP.