Are settlement payments tax deductible?

Asked over 1 year ago - Torrance, CA

Settled outside of court for a breach of contract lawsuit regarding embezzlement. Monthly payments are made, are they tax deductible?

Additional information

I understand punitive damages are not tax deductible but in the settlement agreement, there is no admission of guilt. Additionally, the IRS defines nondeductible penalties as those paid to the government, not to private companies or individuals.

Attorney answers (3)

  1. Antoinette Cara Liewen

    Contributor Level 15

    1

    Lawyer agrees

    Answered . I can't imagine that the payments would be tax deductible. But to GE on the safe side you should consult your CPA or tax preparer.

    DISCLAIMER: This answer is provided solely for informational purposes only. This answer does not constitute legal... more
  2. Scott Gregory Nathan

    Contributor Level 12

    Answered . As the son of a tax accountant, I can confidently say the following: Check with your CPA, EA or a tax attorney. There are many variables in your question which should be carefully considered by a tax professional. Good luck.

    *Scott G. Nathan has been licensed to practice law in California since 1983. The information presented here is... more
  3. Robert Parkinson Taylor

    Pro

    Contributor Level 13

    Answered . Speak with a CPA or tax attorney. I'd say most settlements are not deductible, but it is possible that this is a cost of doing business that could be expensed.

    Good luck!

    Rob

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