For tax years 2018 through 2025, most legal fees and court costs cannot be deducted. These costs cannot be netted against the settlement. Here's what CAN be deducted in your case, if certain criteria apply:
You can deduct legal expenses that are related to doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business. You can also deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule.
Expenses for resolving nonbusiness tax issues are miscellaneous itemized deductions and are no longer deductible.
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