Litagation Question

[hszettler]

In 2019I incurred a large legal expense with regard to a litigation. This law suit has gone in my favor, but settlement won't occur until 2020. How do I write off the 2019 legal fees against the 2020 settlement?

[Opus 17]

Personal?  Not deductible unless it was for workplace discrimination.  In that case, claim your expenses when the settlement is paid.

Business?  Claim the fees as a business expense when you paid them and the income when you receive it.  It will all balance out in the end.

[hszettler]

It was a business litigation, however income was low in 2019 & I don't need the large legal deduction in 2019. When settlement is made in 2020 I will beed the deduction. Can I legally hold off in deducting the legal fees until 2020?

[Opus 17]

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@hszettler wrote:

It was a business litigation, however income was low in 2019 & I don't need the large legal deduction in 2019. When settlement is made in 2020 I will beed the deduction. Can I legally hold off in deducting the legal fees until 2020?

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You're not supposed to.  If you end up with a net operating loss you can carry that forward to 2020.

My only concern, which is mostly hypothetical, is that, if keeping your income looking better for 2019 ends up qualifying you for tax credits that you wouldn't get otherwise, or if you use your 2019 tax return to qualify for a loan that you wouldn't get if you showed the expenses, you can potentially get into tax and legal trouble.

[hszettler]

Thank you. Very helpful.