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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15328
Experience:  15years with H & R Block. Divisional leader, Instructor
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I inherited a business from my father and my siblings

Customer Question

I inherited a business from my father and my siblings successfully sued me for their portion. are my payments to them deductible?
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.


The nature of the underlying claim determines whether you can deduct a legal settlement.

Although settlement payments made by a business are generally deductible expenses, a business must look to the origin and character of the claim with respect to which the expense is incurred to make the determination. Amounts paid to settle a legal action may be deductible as ordinary and necessary expenses if the acts that gave rise to the litigation were performed in the ordinary course of the taxpayer’s business.

If you were required to pay amounts to your siblings through the business that are generally deductible by their nature (wages, compensation to officers..).

A settlement payment that is not related to an expense of the business is not deductible and woudl be a personal expense which is not deductible.