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How Tax Software Hosting Mitigate Cybersecurity Threats

Note: This is a guest post from Vinay Kumar Dewangan — Director of Cyber Security at Ace Cloud.

Tax filing is no exception in an era when technology dominates nearly every facet of our lives. As individuals and businesses increasingly rely on digital platforms to manage their financial affairs, the importance of cybersecurity in the tax preparation process cannot be overstated.

As the Director of Cyber Security at a leading provider of cloud hosting solutions, I understand the paramount importance of cybersecurity in today’s digital landscape, particularly when it comes to tax software.

“Cyber threats loom large, posing significant risks to the integrity, confidentiality, and availability of sensitive financial information.”

In this comprehensive exploration, let’s delve into the evolving landscape of cybersecurity threats impacting the tax filing industry and how tax software hosting emerges as a robust solution to mitigate these risks.

how tax software hosting mitigate cybersecurity threats

The Kaseya VSA Supply Chain Attack (July 2021)

On July 2, 2021, Kaseya was hit by a ransomware attack. This large-scale supply chain attack exploited a vulnerability in Kaseya VSA, a remote monitoring and management software used by Managed Service Providers (MSPs).

The attackers accessed the systems of numerous downstream businesses, including accounting firms. With their isolated and secure infrastructure, tax software hosting providers were largely unaffected, protecting their clients from attacks.

Understanding the Landscape of Cybersecurity Threats in Tax Filing

Tax software contains a wealth of sensitive information, from personal financial data to business earnings. Consequently, it has become a prime target for cybercriminals seeking to exploit vulnerabilities and gain unauthorized access.

While working at Ace Cloud and continuously connecting with 8,000+ clients, I’ve witnessed numerous cyber threats, such as ransomware, phishing attacks, and data breaches.

The stakes are high in everything from personal tax returns to corporate financial statements, making it an attractive target for malicious actors.

According to the AICPA & CIMA Cybersecurity Threats in the Accounting Profession 2023 report, 73% of accounting firms experienced a cyber incident in the past year.

Consider the following statistics to understand the gravity of cybersecurity threats in the tax filing domain:

1. Rise in Cyber Attacks: According to a report by Symantec, malware targeting financial institutions, including tax preparation services, increased by 125% in 2021 compared to the previous year.

2. Phishing Attacks: The IRS reported a surge in phishing scams during tax season, with cybercriminals impersonating tax agencies or tax preparation software providers to steal sensitive information.

3. Ransomware Incidents: Ransomware attacks have become increasingly prevalent in the tax filing industry. Cybercriminals encrypt critical data and demand ransom payments to release it.

4. Data Breaches: High-profile data breaches involving tax preparation firms have exposed millions of individuals’ personal and financial information, leading to identity theft and fraud.

Insider Threats: Insider threats, intentional or unintentional, pose a significant risk to tax preparation firms and can potentially result in data theft or sabotage.

The Role of Tax Software Hosting in Mitigating Cybersecurity Threats

Tax software hosting offers a comprehensive solution to the myriad cybersecurity challenges the tax filing industry faces. Here’s how tax software hosting helps mitigate these threats:

1. Enhanced Data Encryption

Tax software hosting providers leverage advanced encryption protocols to secure data in transit and at rest. This ensures that sensitive financial information remains encrypted and unintelligible to unauthorized parties, mitigating the risk of data breaches and unauthorized access.

2. Secure Access Controls

With tax software hosting, robust authentication mechanisms tightly control access to sensitive financial data.

Multi-factor authentication (MFA) and role-based access controls (RBAC) ensure that only authorized individuals can access and manipulate tax-related information, reducing the risk of unauthorized access and insider threats.

3. Regular Security Updates and Patch Management

Tax software hosting providers maintain and update the underlying infrastructure and software components.

Regular security updates and patch management practices help address known vulnerabilities and protect against emerging threats, bolstering the overall security posture of the tax filing environment.

4. Intrusion Detection and Prevention Systems (IDPS)

Advanced intrusion detection and prevention systems continuously monitor network traffic for suspicious activity and potential security breaches.

These systems can automatically detect and mitigate cyber threats, such as malware infections or unauthorized access attempts before they can significantly harm the tax filing infrastructure.

5. Compliance with Regulatory Standards

Tax software hosting solutions often adhere to industry-specific regulations and compliance standards, such as SOC 2 (Service Organization Control 2) and IRS Publication 4557, to protect sensitive financial information and maintain the trust of clients and regulatory authorities.

It all drills down to the choices you make. There are two methods by which a firm can implement tax hosting services: one is to set up an in-house IT infrastructure, which for large organizations is nothing, but for SMBs and startups, can create a dent in their wallet.

Another process is to get associated with a tax hosting service provider. However, there are n’ number of service providers available in the market. How to choose one?

Look at the prerequisites of an ideal tax software hosting service provider.

Best Practices for Choosing a Tax Software Hosting Provider

With the increasing importance of cybersecurity and data protection, choosing the right provider is crucial for safeguarding sensitive financial information. Here are the best practices for selecting a tax software hosting provider to ensure a secure and seamless tax preparation process:

1. Assess Your Needs and Requirements

Assess your needs and requirements before searching for a tax software hosting provider.

Consider factors such as your business size, the volume of tax-related data you handle, your budget, and any regulatory compliance requirements that may apply to your industry.

2. Research and Compare Providers

Conduct thorough research to identify potential tax software hosting providers. Explore their websites, read customer reviews and testimonials, and inquire about their experience in the industry.

List potential candidates and compare their offerings, including security features, pricing plans, scalability, and customer support options.

3. Prioritize Security Features

Security should be a top priority when choosing a tax software hosting provider. Look for providers that offer robust encryption protocols, multi-factor authentication (MFA), intrusion detection and prevention systems (IDPS), regular security updates and patch management, and compliance with industry regulations such as GDPR and HIPAA.

4. Verify Reliability and Uptime Guarantee

Ensure that the tax software hosting provider guarantees high service reliability and uptime.

Look for providers that offer Service Level Agreements (SLAs) with uptime guarantees of 99.9% or higher. Downtime during tax season can be costly and disruptive, so reliability is essential.

5. Evaluate Scalability and Flexibility

Choose a tax software hosting provider with scalability and flexibility to accommodate your growing business needs.

Ensure that their hosting solutions can quickly scale up or down based on your requirements and that they offer customizable plans and options to suit your specific needs.

6. Consider Data Backup and Disaster Recovery

Data backup and disaster recovery capabilities are crucial for protecting your tax-related data against loss or corruption.

Select a provider that offers robust backup solutions, including regular backups of your data stored in multiple locations and comprehensive disaster recovery plans to ensure rapid data restoration during a disaster.


As cyber threats evolve and proliferate, safeguarding sensitive financial information during tax filing remains a paramount concern for individuals and businesses.

Tax software hosting emerges as a robust solution for mitigating cybersecurity threats. It leverages advanced encryption, secure access controls, regular security updates, intrusion detection and prevention systems, and compliance with regulatory standards.

At Ace Cloud, we understand that cybersecurity is an ongoing battle. We proactively employ continuous monitoring and regular software updates to detect and patch vulnerabilities.

By staying one step ahead of emerging threats, we ensure your tax software remains protected against the latest cyber-attacks.

By embracing tax software hosting solutions, tax preparation firms can enhance their cybersecurity posture, protect sensitive financial data, and uphold the trust and confidence of their clients in an increasingly digital landscape.

In an age of cyber threats, proactive measures like tax software hosting are essential to safeguarding the integrity, confidentiality, and availability of tax-related information.

Author Name: Vinay Kumar Dewangan

Director – Cyber Security

Author Bio: Vinay, the Director of Cyber Security at RTDS, boasts more than 15 years of IT and information security experience, underscored by his CCIE and CISM certifications.

His accomplishments include founding cybersecurity practices, SOC, and cloud security initiatives. His expertise encompasses cyber and cloud security operations, real-time intrusion analysis, security operations architecture, and securing diverse SaaS platforms.

Vinay also demonstrates strong leadership, having overseen a team of over 104 professionals, and shows a deep knowledge of compliance standards such as NIST and ISO 27001.

Himanshu Tyagi
Himanshu Tyagi
Hello Friends! I am Himanshu, a hobbyist programmer, tech enthusiast, and digital content creator. With CodeItBro, my mission is to promote coding and help people from non-tech backgrounds to learn this modern-age skill!
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