Paperless Tax Prep Businesses: Lucrative, Convenient and Risky
Tax season is here! As a tax professional, in a competitive world surging with online, self-service preparation options, you must be accurate, fast, and efficient to gain clients. In a quest to meet these demands, tax professionals are super reliant on technological tools, from online document management and Cloud storage to Apps and tax preparation software, to get the job done. The industry’s pursuit to increasingly become “paperless” has been exacerbated in the onset of the COVID-19 pandemic.
While these technologies are extremely convenient, and in recent times safe for both the client and preparer, they do pose additional risks compared to filing paper returns. For example, E-signature is efficient, but what happens if that signature ends up in a wrong, or unsecured Inbox?
Storing your client documents in the Cloud saves lots of file cabinet space, but it also creates the possibility of documents being stolen by cyber criminals. Tax professionals are prime targets for identity thieves and their clients’ information, including bank and investment accounts, Social Security numbers, health insurance records, and more, can be a virtual goldmine in the wrong hands.
As your client’s trusted source for services, it is your duty to make all efforts to keep their information safe and secure.
The IRS recommends that preparers create a data security plan using their publication, Safeguarding Taxpayer Data. It provides valuable information and, if implemented correctly, could greatly decrease your risk for an information breach. Still, even after seemingly every possible exposure has been addressed, your data may be compromised. Then what?
Cyber Liability Insurance
Consider this (very real) scenario: Your computer is compromised with a virus. Before detection, the virus is delivered to the devices of several clients via an illegitimate email, presenting you as the sender, and containing a link or file attachment. Your clients open the link or attachment, and the virus infects their computers causing important files to be corrupted. Once the source of the corruption is diagnosed, your clients claim you are responsible for any resulting financial damages they or their businesses suffers, as a result of the virus.
Tax professionals most commonly purchase General Liability and Professional Liability insurance policies to protect themselves from risks. Unfortunately, the scenario we’ve presented will not respond to such a claim, but Cyber Liability Insurance will. Even if you suspect the claim is erroneous, Cyber Liability Insurance is required to cover the costs associated with your legal defense.
Now what happens if the virus doesn’t harm the files of others, but caused significant damage to your own computer, network, or data?
Consider this (also very real) scenario: You are preparing a tax return for a client when your computer crashes. You hire an IT professional who diagnoses the issue as a virus, and charges fees to rid your computer of the virus and to recover your lost work. During this repair time, you are unable to complete your work in progress, be responsive to other clients, or take on new clients. You may have Commercial Property and Business Interruption insurance coverage, but they may not respond to such a claim.
Cyber Liability policies are designed to cover the costs to your business stemming from technology-related losses.
How to Obtain Adequate Insurance for Technology-Related Exposures
As you enjoy the fast and convenient benefits of operating a business online, be proactive about mitigating the impacts of these common risks. Not doing so can be damaging to your business’ finances, reputation, and growth. It seems scary, but you don’t have to face this alone. Contact Us today to discuss your risks and strategies to ensure your business is protected.
