I contracted with a vendor to install media equipment in a home I was building. The vendor's work was not finished and what he did complete was not up to code. I had to hire another vendor to complete the work. I sued the vendor in small claims court a

[kathynmichael]

I had to pay costs to issue him a warrant to appear, and lost approximately $1000 having to pay another vendor.

[JaimeG · Accepted solution]

The Legal Fees are Deductible to your Business and you may expense the additional amount that you paid the second vendor to complete the job. You can deduct the attorney's if they are going to produce Taxable Income.

If any money is produced by the Lawsuit it must be entered into your business' Gross Income. The expenses of Legal Fees and the additional amount paid to the Second Vendor will offset the Income produced by a lawsuit. If you created a gain from this lawsuit it will be taxed.