My client, who is a home inspector and doesn't carry liability insurance, is paying a client for a new roof. He failed to detect the faulty roof in their home inspection and it was discovered after the sale, that the roof needed to be replaced. Can he deduct the payments to the customer for their new roof? Thank you.

I guess it depends. The answer to this question hinges on the nature of the settlement and the damages awarded to the client.One of the most difficult situations to face as a contractor/biz owner is when your business faces potential liability for damage to another's property.Personal expenses can not be deducted ;even legal fees that are personal in nature are not deductible.if there is a litigation, and it is a cost of doing biz, then it is deductible. Payments that are made by the inspector are tax deductible provided they can be classified as reasonable, ordinary and necessary business expenses.i mean, at present, the payor is allowed a tax deduction for punitive damages provided these are reasonable, ordinary and necessary business expenses.

This was for negligence and did not go to court. Also, I'm thinking that if liability insurance premiums are deductible, then compensatory damages paid to a client should be deductible as well. It is reasonable, ordinary and necessary, I believe. Thanks for your input, once again.