Court fines and penalties levied for criminal or civil violations have never been inexpensive, but with increasing court costs, even a speeding ticket can cost hundreds of dollars. You may have options like a payment plan or an appeal with regard to these costs. No matter the size of these fines and penalties, though, they are not deductible from gross income on your return.
What Can't Come Off
The Internal Revenue Service prohibits taxpayers from deducting on personal and business tax returns any fines or penalties assessed for breaking the law that are paid in any unit of government. This includes not only criminal penalties but also civil forfeitures such as parking and speeding tickets. Courts -- municipal, state or federal -- are part of the judicial branch of government. Fines or penalties levied by special courts, such as the U.S. Tax Court, are also nondeductible.
What to Deduct
Some costs associated with court cases may be deductible on personal or business returns. Lawyers' fees are deductible. Business losses also qualify as deductions, but occasionally the line between penalties and losses is not clear. One case, Nacchio v. U.S. 2014 U.S. Court of Federal Claims, concerned a penalty levied against a chief executive officer who had profited from insider trading. The court had to balance the no-fines-and-penalties rule against Nacchio's claim that the profit he was ordered to forfeit was a business loss. The court ultimately found that, because Nacchio had paid taxes on the profit when he received it, he was entitled to deduct it as a loss.
- Internal Revenue Service: Publication 529 (2014), Miscellaneous Deductions (List of Nondeductible Expenses)
- IRS: Miscellaneous Deductions (Fines or Penalties)
- IRS: Publication 535 (2013), Business Expenses (Penalties)
- U.S. Court of Federal Claims: Joseph P. Nacchio and Anne M. Esker V. The United States
- New York Times: Deducting the Costs of a Government Settlement
An avid perennial gardener and old house owner, Laura Reynolds has had careers in teaching and juvenile justice. A retired municipal judgem Reynolds holds a degree in communications from Northern Illinois University. Her six children and stepchildren served as subjects of editorials during her tenure as a local newspaper editor.