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.)
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!