Category: blog&news

blog&news

Why Every Tax Preparer Needs Errors and Omissions Insurance (E&O Insurance)

As a tax preparer, your clients rely on you to get it right. But even the best professionals make mistakes — and in the tax world, even a small mistake can turn into a big (and expensive) problem.

That’s where Errors and Omissions Insurance (E&O Insurance) comes in.

What Is E&O Insurance?

Errors and Omissions Insurance is a type of professional liability insurance that protects tax preparers if a client claims they suffered financial loss due to an error, omission, or mistake you made while preparing their return.

This could include:

  • A miscalculation that causes them to owe more taxes than expected
  • An incorrect deduction that leads to an IRS audit
  • Filing under the wrong status
  • Forgetting to include a crucial form or document

Even if the mistake was unintentional (or even if you didn’t actually make a mistake), defending yourself can be time-consuming, stressful, and costly.

Why It Matters for Your Business

Let’s break it down.

✔️You’re Human

No matter how careful you are, nobody is perfect. Simple data entry errors or misinterpreting tax code can happen. E&O insurance has your back when they do.

✔️Client Trust & Professionalism

Having E&O insurance shows your clients you’re serious about your work — and about protecting them. It builds credibility and makes your business look more professional.

 

✔️Lawsuits Are Expensive

Even a small legal dispute can cost thousands of dollars. E&O insurance helps cover:

  • Legal fees
  • Settlements
  • Court costs
  • Investigations: Without it, you’re paying those costs out of your own pocket.

✔️ Some Banks and Software Providers Require It

If you’re offering bank products, working under a Service Bureau, or using certain tax software providers, they may require you to have active E&O insurance in place. It’s a must-have in many partnerships.

What Does It Cover?

E&O insurance generally covers:

  • Negligence or unintentional mistakes in your work
  • Legal defense costs, even if the claim is unfounded
  • Settlement or judgment costs, up to the limits of your policy

It does not cover:

  • Intentional wrongdoing
  • Criminal acts
  • Physical property damage
    (That’s why some tax pros also carry general liability insurance.)
Protecting Your Tax Business from the Unexpected

How Much Does It Cost?

E&O insurance for tax preparers is surprisingly affordable. Most policies range from $200 to $500 per year, depending on your coverage amount and how many returns you file.

That’s a small price to pay for peace of mind.

Bottom Line

You wouldn’t drive without car insurance, right?
Then why run your tax business without E&O insurance?

It only takes one client claim — even if it’s baseless — to put your business at serious financial risk. Errors and Omissions Insurance is one of the smartest investments a tax preparer can make.

Pro Tip: Look for an E&O provider that specializes in tax professionals. Some even offer group discounts if you’re part of a firm or Service Bureau!

blog&news

You Don’t Need to Be a Service Bureau to Win in the Tax Industry

In the tax industry, it’s easy to feel like the next big step is becoming a Service Bureau—offering branded software, managing a network of preparers, and reselling licenses. And while that path can be incredibly rewarding, it’s not the only way to build a profitable, successful tax business.

Let’s talk about why you don’t have to become a Service Bureau to thrive, especially if you’re an independent EFIN Holder or solo preparer.

What Is a Service Bureau Anyway

A Service Bureau is a middleman between tax software companies and individual preparers. They resell software, offer branding, support, and sometimes onboarding and marketing services. It’s a great option for those looking to scale and manage a team—but it’s not the only path to success.

You Can Still Earn Big Without Becoming a Service Bureau

Here’s how EFIN Holders and solo tax professionals earn solid income and grow their businesses—without taking on the responsibilities of a Service Bureau:

1. Keep 100% of What You Charge

When you’re an EFIN Holder using the right software provider, you’re not splitting your revenue with anyone. That means every dollar you earn from tax prep fees is yours to keep—no middleman, no sharing.

2. Add Back-End Revenue Streams

Even without managing other preparers, you can boost your income by:

  • Charging bank product fees (Service Bureau and Transmitter add-ons)
  • Offering Audit Protection and ID Theft Protection as upsells
  • Marking up ancillary services, like document preparation, notary, or bookkeeping

3. Automate and Scale Smart

With today’s tech, you can operate like a team of 10—even if you’re working solo:

  • Use web-based software that includes e-signatures, mobile app access, and document storage
  • Automate intake and communication with white-labeled client portals
  • Track marketing and client growth using built-in tools

4. Grow a Team Later—On Your Terms

Just because you’re not a Service Bureau now doesn’t mean you can’t lead a team in the future. Start with a solid solo foundation, build client trust, and expand when you’re ready—not because you feel pressured to.

Sucess Isn’t One-Size-Fits-All

Success Is Defined by Impact, Not Size

Not everyone wants to manage multiple offices, provide support to other preparers, or deal with the logistics of running a Service Bureau. And guess what?

That’s OK.

Your success might look like:

  • Working with 200 loyal clients year after year
  • Earning 5 or 6 figures as a solo preparer
  • Building a lifestyle-friendly business that allows you freedom and flexibility
  • Becoming an expert in niche markets (truckers, self-employed, expats, etc.)

Do What’s Right for YOU

Whether you’re filing 100 returns or 1,000, what matters is profitability, peace of mind, and the quality of service you provide. Becoming a Service Bureau is a great opportunity for some, but not a requirement for greatness in the tax industry.

Focus on being a great preparer. Master your craft. Build relationships. Stay compliant. Stay sharp.

Success will follow.

Ready to grow your tax business your way?
We’re here to help you build a profitable, stress-free business model that fits your goals—Service Bureau or not.

blog&news

Understanding IRS HUB Testing: A Guide for Tax Professionals

IRS HUB Testing, also known as Controlled Launch, is a preparatory phase conducted by the Internal Revenue Service (IRS) before the official opening of the electronic filing (e-file) season. During this period, the IRS processes a limited number of electronically filed tax returns to ensure system readiness and to identify any potential issues that could disrupt the filing process.

Timing of HUB Testing

The IRS typically initiates HUB Testing in early January, approximately one to two weeks before the official e-file opening date. For instance, in 2024, HUB Testing commenced on January 16, two weeks ahead of the official January 29 processing date.

Purpose of HUB Testing

The primary objective of HUB Testing is to verify that the IRS’s electronic systems can accurately receive, process, and acknowledge tax returns submitted by taxpayers and tax professionals. This testing phase allows the IRS to:

  • Identify and resolve technical issues: By processing a controlled number of returns, the IRS can detect and address any system errors or glitches before the full-scale e-file season begins.

  • Ensure compatibility with tax preparation software: HUB Testing confirms that various tax software programs correctly transmit data per IRS specifications.

  • Enhance taxpayer experience: By resolving potential issues in advance, the IRS aims to provide taxpayers a smoother and more efficient filing process.

Guidance for Tax Professionals

Tax professionals should consider the following during the HUB Testing period:

Submission of Returns:

Continue to prepare and submit returns as usual during the HUB Testing period. However, be aware that there is no control over which returns the IRS selects for testing. The IRS randomly selects transmitted returns during this period.

Modifications Post-Submission:

Once a return is transmitted during HUB Testing, it cannot be changed or retransmitted until it is acknowledged by the IRS, either with an acceptance or a rejection. Ensure all information is accurate before transmission, as the process cannot be halted once initiated.

Client Communication:

Inform clients about the possibility of early processing but also set realistic expectations regarding refund timelines, especially for those claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC). The PATH Act of 2015 mandates that the IRS does not issue refunds on returns that include the EITC or ACTC before February 15.

Selection Process for HUB Testing

Tax returns are randomly selected for HUB Testing from those submitted early by taxpayers and tax professionals. Neither taxpayers nor tax preparers can choose to have their returns included in this testing phase. It’s important to note that submitting a return early does not guarantee its selection for HUB Testing.

Understanding IRS HUB Testing is essential for both taxpayers and tax professionals as it plays a vital role in ensuring a seamless and efficient tax filing season. By identifying and addressing potential issues before the official e-file opening, the IRS aims to facilitate a better experience for all parties involved.

blog&news

What to Expect During an IRS “Knock and Talk” Visit

If you’re a tax preparer, the idea of an unannounced visit from the IRS might sound stressful. However, these visits—known as “Knock and Talks”—are not meant to intimidate or penalize you. Instead, they’re part of the IRS’s efforts to ensure tax professionals like you are meeting due diligence requirements and understand how to avoid mistakes. Let’s break down what these visits involve and how you can be ready for them.

What Is a Knock and Talk Visit?

Knock and Talk visits are in-person meetings between IRS representatives and tax preparers. Their main goal? To help you comply with the IRS’s due diligence rules. These rules are especially important when dealing with refundable credits like the Earned Income Tax Credit (EITC).

The IRS uses these visits to:

  • Educate tax preparers about compliance.
  • Address patterns of errors or inconsistencies in prepared returns.
  • Prevent improper practices before they become a problem.

These visits are not random. Typically, the IRS conducts them when they notice high error rates, unusual refund patterns, or other red flags.

What Happens During a Visit?

When the IRS comes knocking, they’re there to help you understand and improve your processes—not to cause unnecessary stress. Here’s what you can expect during a Knock and Talk visit:

  1. Introductions and Purpose:
    • IRS representatives will explain who they are, why they’re visiting, and what they hope to accomplish. The tone is professional and non-confrontational.
  2. Review of Practices:
    • They may ask questions about how you prepare returns. For example, they might inquire about how you verify client information or calculate credits.
  3. Educational Guidance:
    • This is a chance for the IRS to provide tips, resources, and answers to your questions about compliance. If there’s an area you’re unsure about, they’re there to clarify it.
  4. Documentation Check:
    • They may ask to see examples of your compliance records, such as Form 8867 (Paid Preparer’s Due Diligence Checklist) or other documentation you’ve retained.
  5. Follow-Up Plans:
    • If they find areas for improvement, the IRS will explain what steps you should take and may schedule a follow-up to ensure changes are made.

How to Prepare for a Knock and Talk Visit

Preparation is the key to a smooth visit. Here are some tips to make sure you’re ready if the IRS comes to your office:

  • Stay Organized:
    • Keep your records in order. This includes forms, client information, and any supporting documentation used to prepare tax returns. The IRS recommends keeping these records for at least three years.
  • Use Reliable Tools:
    • Invest in professional tax software that simplifies compliance. Good software can automate calculations, provide compliance checklists, and securely store records for easy access.
  • Train Your Team:
    • Make sure everyone in your office understands what due diligence means and why it’s important. Regular training can help prevent mistakes and ensure consistency.
  • Keep Learning:
    • Tax laws change frequently. Stay informed by attending webinars, reading updates from the IRS, and participating in industry events.
  • Practice Transparency:
    • If you’ve made mistakes in the past, be upfront about how you’re working to improve. The IRS values honest efforts to comply.

Why These Visits Matter

The Knock and Talk program might seem inconvenient, but it can actually be a positive experience. These visits can help you:

  • Identify areas where your practice can improve.
  • Avoid penalties by learning how to correct issues before they become serious.
  • Build a professional relationship with the IRS by showing your commitment to doing things right.

Think of these visits as an opportunity to learn and grow, not as something to fear.

Final Thoughts

No one loves the idea of the IRS showing up unannounced, but Knock and Talk visits aren’t about punishment—they’re about education and improvement. If you stay organized, informed, and committed to compliance, these visits can be a productive part of your journey as a tax preparer.

At NTO Software Solutions, we understand the challenges tax professionals face. That’s why we provide tools, training, and support to help you stay compliant and confident in your work. With the right preparation and resources, you’ll be ready for anything—even an IRS knock on your door.

blog&news

IRS Preparer Audits: The Reality of Compliance and How to Protect Your Tax Business

If you’re a tax preparer, you’ve probably heard about IRS audits and the importance of compliance. But let’s be blunt—an IRS preparer audit isn’t just a minor inconvenience; it can destroy your reputation, hit you with severe financial penalties, and even put your business out of operation. Whether you’ve been in the business for years or you’re just starting out, you need to understand the seriousness of these audits and what’s required to stay compliant.

Here’s the lowdown on what an IRS preparer audit looks like, the penalties for non-compliance, and—most importantly—how to protect yourself and your business.

What Is an IRS Preparer Audit?

An IRS preparer audit is when the IRS reviews tax returns prepared by you or your office to ensure compliance with tax laws and regulations. They are not random. The IRS typically audits preparers when they identify a pattern of errors, omissions, or irregularities in the returns they file. In other words, if they suspect you’re cutting corners, over-claiming credits, or filing inaccurate returns, they will come knocking.

Imagine this: you’ve filed hundreds of returns over the past few years, but a few clients keep coming back with outrageous refund claims that seem too good to be true. You think, “Hey, if that’s what the client is telling me, who am I to argue?” But guess what? Those returns get flagged, and suddenly you find yourself under audit. The IRS will pull those returns, scrutinize them, and if they find evidence that you were negligent or didn’t exercise due diligence, you could be facing some serious consequences.

Penalties for Non-Compliance

So, what happens if you’re found out of compliance? The IRS doesn’t play around. Here are some of the penalties you could face:

  • $545 Penalty Per Violation: For each instance where you fail to comply with due diligence requirements, the IRS can slap you with a penalty of $545 (as of the latest update). If you have multiple violations across multiple returns, those penalties add up fast.
  • Suspension or Revocation of Your PTIN: The IRS can suspend or revoke your PTIN (Preparer Tax Identification Number), essentially taking away your ability to prepare returns legally.
  • Criminal Charges: In extreme cases of fraud or intentional misconduct, preparers can face criminal charges, including fines and imprisonment.

Now that’s the reality of an IRS audit. It’s not just about the fines; it’s about protecting your career, your reputation, and your business.

How to Ensure Compliance and Protect Your Business

The good news is that you can avoid these issues altogether by following a few critical compliance steps. Let’s dive into some practical ways to make sure you stay in compliance and keep your business running smoothly:

1. Exercise Due Diligence—Always

Tax preparers are required by law to exercise due diligence when preparing returns. This means that you need to make every reasonable effort to ensure that the information you enter is accurate and that the credits and deductions claimed are legitimate.

Example: A client comes in and tells you they have three kids, and they’re claiming the Earned Income Tax Credit (EITC). You can’t just take their word for it. You need to verify that the children qualify and that the client meets all eligibility requirements. If you don’t, you’re setting yourself up for a penalty.

To help, the IRS provides a Form 8867, Paid Preparer’s Due Diligence Checklist, which you must fill out and keep on file for every client claiming EITC, Child Tax Credit, American Opportunity Tax Credit, or Head of Household status. This checklist helps document your compliance efforts and can be your lifeline if you’re ever audited.

2. Verify and Document Client Information

It’s essential to double-check the documents your clients provide and keep thorough records for every return you file. Make it a habit to:

  • Request Documentation: Ask for proof of income, dependents, and expenses. If a client is claiming deductions for business expenses, make sure they provide receipts and that those expenses are legitimate.
  • Keep Copies of Key Documents: Store copies of the client’s W-2s, 1099s, and other relevant documents securely for at least three years. This shows you’re not just taking information at face value but are actually verifying and documenting it.
  • Review Prior Year Returns: Checking previous returns for consistency can help you catch potential red flags early. If something looks off, it probably is.

Tip: Consider using secure document management software to keep everything organized and easily accessible if the IRS ever comes calling.

3. Stay Up-to-Date with Tax Law Changes

Tax law changes every year, and failing to keep up with these changes can lead to compliance issues. The IRS expects preparers to know the latest laws and regulations, so it’s up to you to stay informed. Here’s how:

  • Attend Continuing Education Courses: Take advantage of courses that focus on updates to the tax code, IRS compliance guidelines, and best practices for preparers. It’s worth the investment.
  • Use Up-to-Date Software: Make sure the tax software you use is compliant and updated regularly to reflect the most current tax laws. At NTO Software Solutions, we pride ourselves on providing the #1 Rated Professional Tax Software, which is always updated with the latest tax laws and IRS compliance requirements.

4. Implement Internal Compliance Checks

Don’t leave compliance to chance. Setting up internal compliance checks can save you from costly mistakes. Here’s what you can do:

  • Review Returns Before Filing: Establish a process where another experienced preparer or supervisor reviews each return for accuracy and compliance before it’s submitted.
  • Train Your Team: Ensure that every preparer in your office knows the importance of due diligence and compliance. Regular training sessions, especially during tax season, can make all the difference.
  • Create Checklists for Common Compliance Risks: For example, have a checklist for all returns claiming the EITC or Child Tax Credit to make sure nothing is missed.
  • Take Notes: Writing notes on each taxpayer during the interview process is essential to proving that you asked the hard questions and that the answers given to you by the taxpayer were how you determined how to prepare their tax return. These notes could be the saving grace when an auditor is determining whether proper due diligence was exercised.

Real Talk: Many preparers think they can skip these steps because they’ve “never had an issue before.” But the reality is that the IRS is cracking down harder than ever. Don’t wait until you’re under audit to start caring about compliance—it’s too late then.

5. Use IRS Resources and Stay in Communication

The IRS actually provides several resources that can help you stay compliant. Make it a habit to check their website for updates, alerts, and guidance documents that pertain to preparers. And if you ever have a question about a return, reach out to the IRS Preparer Hotline. It’s better to ask questions upfront than to fix mistakes later when the penalties have already stacked up.

Conclusion: Compliance Is Non-Negotiable—Protect Yourself and Your Business

IRS audits are serious, and the penalties for non-compliance are no joke. But the good news is that with the right knowledge, tools, and processes, you can protect your business and your reputation. At NTO Software Solutions, we’ve been in the industry long enough to know what works and what doesn’t. We’ve built our software and our programs with compliance in mind, so you have everything you need to stay protected and succeed.

Remember: Compliance isn’t just about avoiding penalties; it’s about building trust with your clients and creating a reputable, sustainable business. Take the necessary steps today—because in the tax world, staying compliant is the only option.

If you’d like any more information or a personalized compliance checklist for your tax business, reach out to us. At NTO, we’ve got your back—because we know what it takes to win in this industry.