Do I really need insurance as a tax preparer? It’s a question many professionals ask, especially when they’re just starting out or working solo. And it’s a fair one. Many new tax professionals and solo business owners feel uncertain about whether it’s necessary or if it’s just another added cost.
Professional liability insurance for tax preparers helps protect what you’ve worked hard to build. When you’re handling sensitive information, giving advice, or filing returns, even minor oversights can lead to costly consequences. That’s where the right protection becomes an absolute necessity.
Let’s walk through why insurance matters for tax preparers, what kind of protection to look for, and how to make sure you’re getting the right coverage for the way you work.
Before we go any further, are you working for someone else, or are you running your own tax prep business?
If you're an employee at a tax firm, your employer is obligated to take care of liability coverage for you. That means you’re protected under their policy if something goes wrong(and that you can earmark this article and come back to it if you decide to start your own tax preparer business one day).
If you’re self-employed (even as a sole proprietor), you’re responsible for your own protection. And forming an LLC doesn’t personally protect you from lawsuits. It keeps your personal assets safe to a certain extent, but if a client claims you made an error or you miss an important deadline, your business could still be held liable.
Insurance for tax preparers helps protect your finances, your reputation, and the hard work that you’re putting into growing your business. If you’re running the show, you need to have your own safety net in place, and the right insurance will do just that.
As a tax preparer, you handle a lot of sensitive information, like private financial data, personal records, and everything that goes into filing accurate returns. Even the smallest mistake can lead to a big refund error or even trigger an IRS audit. Additionally, the IRS can audit returns for up to seven years. That means something you filed today could come back to haunt you long after you’ve forgotten about it.
If your client is high-earning or has significant assets, the stakes become even higher. These clients have more to lose if something goes wrong and more reasons to take legal action if they believe your work has caused them any level of financial harm. This is why liability insurance for tax preparers is absolutely essential.
This is also extremely important if you have employees or subcontractors assisting you, as your risk multiplies. Each employee you hire is, from a risk exposure perspective, another person who could make a mistake as a representative of your business.
That’s why subcontractors you hire to help, like seasonal workers, should be required to have their own insurance before you contract them, so you aren’t held responsible for their actions.
The more people that are involved, the more moving parts there are to protect. A single misstep from anyone on your team can become your responsibility.
Here are the main types of insurance for tax preparers that can help protect your business, your clients, and your peace of mind. With the right coverage in place, you can feel more secure, avoid any unnecessary stress, and stay focused on doing your best work every day.
Professional liability is key for every tax preparer. This protects you from inaccurate advice, negligence, clerical errors, and failure to deliver services. A professional liability policy will help cover costs associated with settlements, judgments, and defense fees associated with the professional services you provide. Every tax preparer who runs their own business should have Professional Liability insurance.
If a client trips on your office rug or you break a costly vase while visiting them in their home to review their tax returns, general liability insurance has your back. It covers physical injuries or property damage to third parties that happen as part of doing business.
Every day, you handle private financial data. If that data is hacked, lost, or stolen (even by accident), you could be held responsible. Cyber liability helps cover the costs of data breaches and the data restoration, monitoring, and reputational repair that need to occur to prevent your business from suffering in the aftermath.
A Business Owners Policy(BOP) is a bundle that usually includes general liability plus property coverage. It can help protect your equipment and your workspace in addition to covering costs associated with accidental injury or property damage to a third party, whether it’s at home or in a small office.
If you have employees (even if it’s just one part-timer), most states require you to have Workers Compensation insurance. It helps cover injuries that happen on the job as well as illness by paying for the cost of lost wages and medical bills associated with the injury.
If you use contract workers, they need their own protection. We strongly recommend that you require all subcontractors for your business to carry their own insurance as a prerequisite to working with you.
It’s easy to see insurance as just another line item in your budget, but insurance for tax preparers plays an important role in helping your business grow and stay strong. It protects your work, your income, and the reputation you’ve built with your clients.
In fact, having the right insurance in place can help you win better contracts. Some clients won’t work with a tax preparer unless they see proof of coverage. Insurance shows that you take your business and their trust very seriously.
It also gives you peace of mind, especially during tax season when things are busier and small mistakes can quickly escalate into significant issues. You’ll have a safety net in place if something unexpected happens. That kind of confidence is good for you, your clients, and your long-term success.
If you're a tax preparer running your own business, insurance is a must. You’re working with sensitive data, high-stakes returns, and clients who are counting on you. The right business insurance for tax preparers helps you stay protected, no matter what comes your way.
At CoverHound, we help small business owners like you compare quotes from over a dozen A-rated carriers, so you can get insurance that fits your business and protects it not only today, but also for the future.
You’ve worked hard to build something meaningful. Let’s make sure it’s protected. Get your free, no-hassle quote today.
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