Why Your Tax and Bookkeepers Business Needs Professional and Cyber Liability Insurance
Do you own or operate a tax and bookkeepers business? Then it’s important to understand how insurance keeps your business safe.
Running a tax and bookkeeping business can be legally risky. If you make a mistake that costs people money, they might sue you to get it back. Similarly, if a hacker steals your clients’ personal information, using it to access their financial accounts, they might file claims against you for letting it happen.
Risks such as these illustrate why tax preparers must protect their businesses with insurance. What types of insurance? The most important policies to buy are professional liability insurance and cyber liability and data breach insurance.
Why You Need Professional Liability Insurance
As you know, the U.S. Tax Code is complex. If you forget about or misinterpret a provision, you might file an incorrect tax return. Fortunately, for most tax preparers, this is a rare event; however, even highly knowledgeable tax professionals can make mistakes. After all, they’re human.
The range of potential mistakes is broad. You might miss an allowable deduction or forget to correctly document individuals claimed on a return. Or, you might overlook a tax-reduction strategy the tax code allows, resulting in a client paying extra taxes. Making an error on a return will expose you to legal liability. The point is that every time you file a client tax document, you’re putting yourself and your firm at risk.
Furthermore, tax preparation mistakes aren’t rare. They happen to most preparers at some point in their careers. For example, here are three common mistakes that have led to tax preparers getting sued:
- Missing a filing deadline, exposing clients to IRS penalties
- Incorrectly calculating a client’s estimated tax liability, leading to an IRS underpayment penalty
- Failing to include an essential tax schedule in one or more tax returns, again leading to a tax underpayment and IRS penalties
How Professional Liability Insurance Works
Professional liability insurance reduces the financial impact of getting sued. It provides funds to pay for a defense attorney and cover settlements or judgments a judge or other authority imposes on you. Without insurance, you will have to pay for these costs yourself.
Professional liability insurance provides other benefits, including:
- Assistance from your insurer’s claims adjuster.
- Access to a defense attorney without having to find one yourself.
- The ability to resolve your case through arbitration and mediation.
- Payment of court-related costs.
- Guidance on handling regulatory enforcement actions.
- Help with responding to court subpoenas.
Why You Need Cyber Liability and Data Breach Insurance
Professional tax-preparation companies are crime magnets. That’s because they store information hackers steal to commit fraud. If your professional negligence allows this to happen, you might be liable for hundreds of thousands of dollars in financial losses— or more, depending on how many clients are involved.
One cyber threat involves hackers stealing past client tax returns or their personally identifiable information (PII). In either case, they use this data to file fraudulent IRS tax returns under your clients’ names, allowing the criminals to receive tax refunds under pretense.
A similar fraud involves sending tax preparers emails requesting they update their tax-preparation software. When they click on an embedded link, the criminal installs malware on the preparer’s computer, allowing them to generate phony client tax returns and claim undeserved tax refunds.
A third scheme asks tax preparers to update clients’ bank account information. When it comes time to remit funds to clients, they go to the hackers’ accounts, not the clients’.
These are just several examples of the common frauds cyber criminals use against tax preparers and their clients. How to protect yourself? Buy cyber liability and data breach insurance.
How Cyber Liability and Data Breach Insurance Works
Cyber liability and data breach insurance protects you against first- and third-party financial claims after a cyber incident.
First-party claims involve expenses to assess and repair a cyber breach. To name a few, these include hiring an expert to determine how the breach occurred, paying vendors to repair damage to your computer hardware, applications and network and giving clients a free membership to a credit monitoring service.
Third-party claims result from outside people or entities suing you because your data breach caused them to lose money. Like professional liability insurance, cyber liability pays for your legal expenses, including attorney fees, legal settlements and judgments against you and regulator fines.
Don’t Take on Risks Alone
Running a tax preparation business can be legally hazardous. However, you don’t have to bear these risks on your own. Purchasing professional liability insurance and cyber liability and data breach insurance will transfer your risks to an insurance company. This means you won’t have to pay large legal bills, potentially bankrupting you and your family.
Are you paying too much for tax preparer professional liability insurance? Check out the coverage available at 360 Coverage Pros, with premiums starting at $23.33 per month. Ready to buy cyber liability and data breach insurance? Read about our program.