Outsourcing tax filing to tax preparers is one of the latest trends in the business environment. This will enable business owners to focus on other core functions.
Another benefit is that their taxes will be handled by tax experts who have several years of experience in filing. Outsourcing your taxes means fewer errors and fewer taxes since the experts will look for legal ways to reduce your tax liabilities.
One thing to look out for when outsourcing your tax preparation to a tax professional is Errors and Omissions Insurance. The tax preparer must have the E&O insurance in the event of errors during the filing process. This type of insurance policy for tax preparers is also known as professional liability insurance.
As a tax preparer, having this insurance means that the insurer will take care of any fines and penalties on your clients due to errors during the tax preparation process. Good idea? Definitely.
What Does Errors And Omissions Insurance For Tax Preparers Cover?
There are thousands of lawsuits against tax preparers in the United States every year. Tax preparers need the best E&O insurance to cover them against these lawsuits. Here is what professional liability insurance for tax preparers cover:
- Tax Filing Mistakes: Imagine you’re helping a client with their taxes, and you accidentally miss an important deduction. This could lead to your client owing more taxes and facing penalties. Errors and omissions insurance steps in to cover the costs of fixing the error and any fines your client might incur.
- Missed Deadlines: Picture a scenario where you forget to file a client’s tax return on time. This might result in your client facing IRS penalties and interest charges. E&O insurance can help pay for those penalties and any related expenses.
- Negligence Claims: Suppose a client accuses you of being negligent in your tax advice or in preparing their return, causing them financial harm. This insurance can cover your legal defense costs and any settlements or judgments that arise from such claims.
- Data Breaches: Consider a situation where your client’s sensitive tax information gets exposed due to a data breach. If your client sues you for damages, E&O insurance can help with legal costs and potential settlements.
- Legal Fees: It’s important to know that this insurance typically takes care of legal expenses, including attorney fees and court costs, while you’re defending yourself in a covered claim. This can be a big relief because battles can be quite expensive.
How to Save on Errors and Omissions Insurance for tax Preparers
Follow and implement these tips to save on professional liability insurance:
1. Shop Around
When looking for E&O insurance, don’t settle for the first quote you receive. Approach multiple insurance providers to obtain quotes. This allows you to compare premiums, coverage limits, deductibles, and policy terms.
Different insurance providers may offer contrasting rates based on their underwriting criteria. Therefore, taking the time to shop around can help you find the most affordable option.
2. Bundle Policies
Bundling your E&O insurance with other business insurance policies, such as general liability or a business owner’s policy (BOP), can lead to cost savings.
Insurers often offer discounts to businesses that consolidate their coverage with one provider. This approach not only saves money but also simplifies your insurance management.
3. Risk Management
Implementing robust risk management practices is crucial for reducing your risk profile and insurance premiums. Consider creating standardized procedures for tax preparation, emphasizing thorough documentation, and instituting error-checking processes.
Training your employees to adhere to these practices demonstrates your commitment to minimizing errors and potential claims.
4. Maintain a Clean Record
A history of insurance claims can result in higher premiums. Strive to maintain a clean claims history by minimizing errors and addressing any client concerns promptly. Your track record of resolving issues professionally and efficiently can positively impact your insurance costs.
5. Choose Appropriate Coverage
Tailor your E&O insurance policy to your specific business needs. Evaluate your services and the level of risks associated with them. Avoid paying for more coverage than necessary, but ensure your policy adequately protects you from the unique risks of tax preparation.
6. Increase Deductibles
You can lower your premium costs by opting for a higher deductible. The deductible is the amount you must pay out of pocket before your insurance coverage kicks in. Choosing a higher deductible can reduce your premiums, but make sure you have the financial capacity to cover that amount if a claim arises.
7. Risk Mitigation Measures
Implement risk-reduction measures in your business operations. For instance, invest in robust cybersecurity protocols to protect sensitive client data. Insurers may offer discounts or reduced premiums to businesses that can demonstrate strong security measures, as this decreases the likelihood of data breaches and related claims.
8. Professional Associations
Consider joining professional associations related to tax preparation. Some of these organizations offer group insurance plans to their members. Group insurance plans often come with lower rates due to the collective bargaining power of the association.
9. Review and Update
Your business is likely to evolve over time. Periodically review your insurance policy to ensure it aligns with your changing needs. As your business grows or diversifies its services, you may discover opportunities to adjust your coverage and save money while maintaining adequate protection.
9. Seek Discounts
Don’t hesitate to inquire with your insurance provider about available discounts. They may offer incentives for maintaining a claims-free history, paying your premiums early, or bundling multiple policies.
10. Annual Review
Insurance isn’t a “set it and forget it” arrangement. Make it a practice to annually review your insurance coverage and shop around for better deals. Even if you haven’t made any recent claims, insurance markets can change, and new opportunities for savings may arise.
How To Buy Errors And Omissions Insurance
To get Errors and Omissions (E&O) insurance, follow these steps:
- Understand Your Needs
Determine if E&O insurance is necessary for your profession or business. E&O insurance is typically suited for professionals and businesses that provide services or advice, such as lawyers, consultants, real estate agents, and insurance brokers.
- Identify Insurance Providers
Research insurance companies that offer E&O coverage. You can do this online or by contacting local insurance brokers for recommendations.
- Assess Coverage Options
Different providers offer varying levels of coverage and policy options. Assess your specific needs to determine the appropriate coverage amount and policy features.
- Request Quotes
Contact insurance providers and request quotes for E&O insurance. Provide them with relevant details about your business or profession to get accurate quotes.
- Compare Quotes
Compare the quotes you receive in terms of coverage, deductibles, premiums, and any additional features or services included in the policy.
- Check for Specialized Coverage
Depending on your industry, there may be specialized E&O insurance options tailored to your profession. Consider these specialized policies if they are available and relevant to your needs.
- Evaluate the Insurance Company
Research the reputation and financial stability of the insurance companies you are considering. You want a reliable insurer that can fulfill claims when necessary.
- Review Policy Terms
Carefully read and understand the terms and conditions of the E&O policy you intend to purchase. Pay attention to coverage limits, exclusions, and any requirements for maintaining coverage.
- Consult with an Insurance Agent or Attorney
If you have questions or anything you don’t understand about E&O insurance, you can consult with an insurance agent or tax attorney near you to ensure that you make the best decisions for your business.
- Purchase the Policy
Once you’ve chosen the most suitable E&O insurance policy, complete the application process, pay the premiums, and obtain your policy documents.
Conclusion: How to Save on Errors and Omissions Insurance for tax Preparers
E&O insurance can be a game changer for your tax filing business. Errors can happen at anytime while filing clients’ taxes, which can lead to penalties or IRS audits.
Buying professional liability insurance will increase your client base. Most business owners don’t engage tax preparers without E&O insurance. Hence, get this policy and stand out from your competitors.
With Errors and Omissions Insurance, the insurer will cover attorney fees, court costs and settlements. Don’t let errors destroy your business. Get E&O insurance for tax preparers today.