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3 Legal and Liability Tips Freelance Remote Accountants Must Consider

legal liability freelance remote accountant

If you’re considering a career as a freelance remote accountant, or if you’ve already started one, there are certain legal and liability issues you need to deal with. As you’ll no longer have the protection of an employer to bail you out of any lawsuits or legal troubles you might encounter in your work life, it will be up to you to put the proper safeguards in place.

The consequences of not taking the actions outlined in this article can be dire. If a client feels he’s been wronged and wins a lawsuit against you, the court could empty your bank account and force you to liquidate your assets, including your house and car. And if you accidentally violate any tax or financial regulations, you could face fines or even jail time.

You might think nothing like that can happen to you, but remember that everyone makes mistakes. And even if your accounting practice is truly error-free, you could still rack up legal fees battling a frivolous lawsuit.

So be sure to take the recommendations in this article seriously. And don’t stop there. This isn’t meant to be a comprehensive list, so you’ll want to sit down with a lawyer or CPA even after you’ve done the things we’ve outlined here to make sure you’ve got all your bases covered. (And yes, we know you yourself are probably a CPA, but it’s still smart to get an outside opinion.)

1) Form an LLC

Creating a limited liability company (LLC) is the first and most important step you should take before signing up clients as a freelance remote accountant.

LLCs do just what the name implies–they limit your liability. Without one, you and your accounting business are considered the same “person,” so any action taken against your business will be taken against you as well.

An LLC ensures that your business and personal finances are separate. It sets up a “box” that contains all the money you make from clients. If someone decides to sue you, they can only sue for what’s in that box, not for your personal finances or possessions.

LLCs also separate your personal debt from your business debt. If your freelance practice falls on hard times, debt collectors can’t go after your private assets. And if you rack up too much personal debt, no one can force you to use the money in your corporate account to cover it.

The best way to set up an LLC is through a lawyer or CPA. But if you’re pressed for time and cash, LegalZoom is an increasingly popular option. LegalZoom documents don’t always hold up in court as well as those drafted by your own lawyer or CPA, but they’re certainly better than nothing.

Some CPAs choose not to form an LLC for tax reasons, fearing that their earnings will not qualify as pass-through income and will be double-taxed. But in most cases, LLC revenue still qualifies as pass-through income and is taxed accordingly.

The new GOP tax cut bill has sections that are purportedly meant to help small businesses. It’s possible these changes could make a sole proprietorship more advantageous than an LLC. But it’s hard to tell what the real impact of the bill will be, so for now, we recommend going the LLC route. You can always break it up later.

2) Purchase an Accountants’ Professional Liability Policy

Now that you’ve got your finances separated, it’s time to protect your business cash and assets.

One way to do that is by purchasing insurance. An Accountants’ Professional Liability Policy is a popular product for freelance remote accountants and can be obtained through insurance and risk management company CPA Mutual.

Policies differ in the amount of protection they provide and the types of things they cover. And like with all insurance, you’ll get what you pay for–the higher the premium you’re willing to pay, the more expansive your coverage will be.

But in general, an Accountants’ Professional Liability Policy will provide some level of safeguard and relief for you in the these areas:

  • Civil or criminal fines, penalties, sanctions, or forfeitures;
  • Punitive or exemplary amounts, including attorneys’ fees;
  • Amounts claimed for the return or reimbursement of fees for your services;
  • Amounts for which you are not financially liable or that are without legal recourse to you; and
  • Liquidated damages, fees, costs, attorneys’ fees, litigation expenses, or other amounts payable under any contract or agreement.

3) Purchase a cyber liability policy

“In this day in age, data is almost as valuable as cash,” Nick Pasquarosa, founder and CEO, Bookkeeper360, said. “Your critical client data needs to be secured. The purchasing of cyber insurance is something to strongly consider.”

Juniper Research reports that global costs of cybercrime will reach $2.1 trillion by 2019. Certainly much of this money will come from large corporations. But if you think your freelance remote accountant practice is too small a fish for hackers to go after, think again.

Cybercrime affects businesses of all sizes, and you may actually be more at risk than larger companies because you won’t be able to afford the most sophisticated security software. And even if you could, you wouldn’t be able to regularly update it to protect against new and evolving methods of attack.

“Independent contractors are ripe for fraud,” Bill Thompson, president, CPA Mutual, said. “Your clients’ confidential data is at risk. The last survey I saw said the notification costs alone are almost $300 a record. It can add up to a lot of money.”  

Again, every policy is different, but look for cyber liability that offers the following:

  • Protection from cybercrime, including wire transfer fraud, telecommunications fraud, and phishing attacks;
  • Replacement or recovery of lost or stolen data;
  • Expert breach response services, including legal, IT, and PR support; and
  • Coverage for income loss resulting from interruption of your computer system.

“Many policies, including ours, offer forensic services, too, so you’ll be able to get an IT person in to see if the crook is still lurking around your server. Also, you can see how they got in and gained access,” Thompson said.

A final note about bonding

This is probably a consideration for later on in your freelance remote accounting career, but if you eventually hire employees, you may want to acquire a fidelity bond to protect against theft, embezzlement, and other on-the-job employee malfeasance. There are many different types of fidelity bonds, so be sure to do your research to see what is covered and the maximum amount the bond will pay.

Find more freelance remote accounting work through Accountingfly

We hope these tips help protect you as you build your career as a freelance remote accountant. Again, this is not meant to be a complete list of legal and liability recommendations, so your best bet is to consult a lawyer or CPA.

In the meantime, if you’re looking to grow your client list, check out the jobs listed on Accountingfly. You can use the “Filter by Job Type” menu on the bottom right of the screen to only see contract and/or part-time jobs. Accountingfly is 100% free for job seekers, so you’ve got nothing to lose.

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