I have been paying a judgement every month that is against my business, where do I report payments on my taxes?

[chantellemoline]

I got sued last year by an old landlord. I lost. I have been paying the Judgement every month. Where on my business taxes do I report those payments?

[GeorgeM777]

That depends.  What is the origin of the claim?  That is, what was the basis for the lawsuit against your business.  Was it because you had failed to pay rent?  Was it for damage to the property?  If you can provide a little more detail about nature of the claim, then we can provide some guidance on how you should report the judgement payments on your tax return.

Generally, payments that arise out of a business activity are deductible as business expenses; however, based on the nature of the lawsuit, certain payments may have to be capitalized.  If there were multiple underlying claims in the lawsuit, then some allocation of expenses may be required. 

@chantellemoline

[chantellemoline]

It was a lawsuit for back rent.

[JosephS1]

The payments that are actually for the rent in arrears would be a deductible expense; provided you are a cash basis taxpayer and not an accrual basis taxpayer and previously deducted the rent due.  Penalties assessed, if any, would not be deductible.

Legal fees paid due to the lawsuit may also be deductible if it can be proven that they were paid for the protection of income.

@chantellemoline 

[chantellemoline]

Ok thank you. Do you know what section the actual payments would need to be put under? 

Legal and professional fees?

Other miscellaneous expenses?

[JosephS1]

The rental arrears would fall under rent paid and the legal expenses, if deductible, would normally fall under Legal and professional fees.

@chantellemoline 

[chantellemoline]

Would it be put under ‘Rent Paid’ even if he’s an old landlord and this is from a judgment outcome?

[DianeW777]

Yes, any portion of the judgement that was strictly the rent portion is deductible as rent.  

As far as Penalties & Fines:  See more in IRS Publication 535 in reference to these and legal fees for your specific situation.

On or after December 22, 2017, no deduction is allowed for the restitution amount or amount paid to come into compliance with the law unless the amounts are specifically identified in the settlement agreement or court order.