Starting a tax preparation business or preparing for another busy season? Your California tax preparer bond and errors and omissions insurance serve different purposes. Here is what to know before you buy.
1. Who Needs a California Tax Preparer Bond?
California generally requires non-exempt individuals who prepare income tax returns for compensation to register with the California Tax Education Council (CTEC) and maintain a $5,000 tax preparer surety bond.
California CPAs, enrolled agents, and California attorneys generally qualify for registration exemptions. Check the rules for your individual credentials and work arrangement.
2. A $5,000 Bond Does Not Mean a $5,000 Purchase Price
The $5,000 figure is the required bond amount, not the price you pay. You purchase the bond for a premium.
Your quote shows the cost and available term. Review the effective and expiration dates before completing your purchase.
3. Instant Issuance Helps You Move Forward
Instant online issuance is available for eligible tax preparer bond purchases after you complete the application, payment, and any required verification. Follow the checkout instructions to obtain your bond documents. Applications requiring additional review may take longer.
Before starting, have these details ready:
- Your legal name as it should appear on your bond
- Your mailing address and contact information
- Your requested bond effective date
- Your payment information
Check that the name on your bond matches your registration information. Purchasing a bond does not complete or approve your CTEC registration.
4. The Bond Protects Eligible Claimants
The bond provides financial recourse for people harmed by specified misconduct or unlawful acts or omissions covered by the bond and California law.
It is not a general business insurance policy. If the surety pays a valid claim, you may have to reimburse the surety under your indemnity agreement.
5. Consider Tax Preparer Errors & Omissions Insurance
Even a careful tax preparer can face an allegation of a professional mistake. Errors and omissions (E&O) insurance, also called professional liability insurance, may help with covered claims alleging negligence, errors, or omissions in your tax preparation services.
For example, a client might allege that a preparation error caused a financial loss. Whether defense costs or damages are covered depends on the actual policy.
Review covered services, limits, deductibles, exclusions, and any claims-made reporting or retroactive-date requirements. Do not assume client taxes, penalties, or every type of mistake are covered.
Your bond and E&O policy are separate products. Buying one does not automatically provide the other, and instant bond issuance does not mean an E&O policy is automatically approved or in force.
6. Keep Your Registration and Bond Current
CTEC registration involves more than purchasing a bond. Initial requirements generally include qualifying education, an IRS Preparer Tax Identification Number (PTIN), Live Scan and background-check approval, and applicable fees.
Renewals involve continuing education, PTIN renewal, registration renewal, and maintaining the required bond.
Keep your bond documents and set reminders for both registration and bond expiration dates. Their renewal schedules may differ.
For current requirements, visit: