Am I able to claim the payment made to cover a business related out of court dispute? If so, how do I claim this and where?

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The company I work for (1099) was threatened legal actions unless an agreement could be arranged regarding a product that was sold did not meet their expectations.  The company and I agreed to split the settlement ($7,500 each).  The amount of the settlement was included on my 1099 but I never actually received the money so the full payment was sent from the company.  Am I able to deduct this amount from my business income?  If so, how do I do this?

[AnnetteB · Accepted solution]

Since the company paid your share of the settlement and included the amount as income on your Form 1099-MISC, you can deduct it on your Schedule C expenses.

There is not a specific category that makes the most sense for this.  It would be easiest to include it in the Less Common Expenses section, using the Other Miscellaneous Expenses category.  Doing so will allow you to enter your own description for the expense.