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Are settlement payments tax deductible?

Torrance, CA |

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

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.

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Attorney answers 3


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.

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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 general in nature and is not intended, nor should it be construed as legal advice for any particular case or matter. This posting does not create any attorney-client relationship with Scott G. Nathan or my law firm. For specific advice about your particular situation, you should consult with an attorney immediately.


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!


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