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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13343
Experience:  15years with H & R Block. Divisional leader, Instructor
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Can I take a deduction on Sched C legal settlement where

Customer Question

Can I take a deduction on Sched C for a legal settlement where income that was due to be paid to me was paid to another party? I was a sched C filer from 2000- 2010 and paid self employment and income tax on a contract I had with a business. Due to a lawsuit , I settled with a 3rd party by giving them any fees under that contract for a period of time. The amount of the settlement (lost Sched C income) was finally determined to be $110k in 2015.
I still file a small Sched C in addition to my majority W2 income, and as I am paying off the IRS for about $50k in taxes still due from the 2008/2009/2010 Self employment years, I would like to write off this $110k in lost income due to the settlement. Can I legally do that on Sched C this year?
Submitted: 8 months ago.
Category: Tax
Expert:  Robin D. replied 8 months ago.
HelloWhether or not you can deduct the settlement amount depends on the reason for the lawsuit. If the payment would have been made without the suit and allowed as deduction then you may be be allowed to use it as a deduction now. This would be if the payment was for back wages owed.If the basis of your lawsuit is a business contract dispute and you are unsuccessful, you may be able to claim a business expense deduction for the amount of the settlement award.For example, suppose you operate a restaurant and you refuse to pay one of your suppliers for a shipment of produce that you claim was spoiled at the time of delivery. Regardless of whether this is true or not, if the court decides in favor of the supplier and requires you to make full payment for the shipment, you can claim a deduction.You are required to click a positive rating if I am to be credited with the response.You have to actively click on a rating and click submit. Smiley Faces or Stars.
Expert:  Robin D. replied 8 months ago.
I answered your follow up too. You need to just rate one of the questions. The other i can have removed.