turbotax icon
Showing results for 
Search instead for 
Did you mean: 
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

New Member

Are business related settlement payments deductible?

Last year I reached a settlement agreement with another business involving intellectual property and paid them an amount for the settlement. Can I deduct that as a business expense? Where in the IRS code does it explain these rules?

This feature is pending. Thanks for your patience.
Didn't get the answer you wanted? Our digital assistant can help you.
1 Reply

Are business related settlement payments deductible?

Yes, amounts paid for settlements are deductible as long as the basis of the suit is in fact a business matter and not personal.  In other words, the acts that gave rise to the litigation must have been performed in the ordinary course of your business.  The settlement amounts also cannot represent fines or similar penalties paid to a government for the violation of any law.  Any amount of the settlement that is punitive in nature (designed to punish the wrong doer) instead of compensatory is not deductible. 

In TurboTax, the amount paid to your attorney is entered into "Legal and professional services."  The amount paid to the other party can be entered under "Other expenses" with a short description, "legal settlement of business dispute."

Please see this recent ruling by the IRS on the deductibility of settlement costs as ordinary and necessary business expenses: https://www.irs.gov/pub/irs-wd/1412002.pdf

message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question
message box icon

Ready to start your taxes?

Hand off your taxes, get expert help, or do it yourself.

See Pricing
Manage cookies