As part of the Tax Cuts and Jobs Act of 2017, Congress made it more difficult for businesses to deduct settlements paid for sexual harassment or abuse.
Settlement payments made to avoid litigation, including attorney’s fees and court cost, are generally deductible as ordinary business expenses.
However, Congress added new rules that would make it more difficult to deduct settlement payments that relate to sexual harassment.
Effective December 22, 2017, any settlement paid or accrued for sexual harassment or abuse subject to a nondisclosure agreement is a non-deductible business expense.
Attorney’s fees and any related expenses are also non-deductible business expenses.
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