Yes, business related settlement payments are deductible. If a settlement involves both personal and corporate components, you generally need to allocate the settlement amount between the personal and corporate portions. Only the corporate portion can be deducted as a business expense. The personal portion is not deductible. It's important to accurately document the allocation and ensure it reflects the nature of the expenses.
Examples of Deductible Settlements from Capex Events
- Settlements that are deductible as ordinary and necessary business expenses, even if they have roots in a capital expenditure (capex) event, can include:
- Legal Fees: If you incur legal fees to defend or perfect title to property, these fees are generally capitalized. However, if the legal fees are related to the ordinary operation of the business, they may be deductible.
- Repair Costs: If a settlement involves repair costs that restore property to its original condition, these costs may be deductible as ordinary and necessary business expenses.
- Environmental Cleanup: Settlements related to environmental cleanup costs can be deductible if they are necessary to comply with environmental regulations and are considered improvements to the property.
- Breach of Contract: If a settlement arises from a breach of contract related to the ordinary course of business, it may be deductible as an ordinary and necessary business expense.
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