Are Punitive Damages Tax Deductible?

There’s a two-part answer here, one from the defense perspective and the other from the plaintiff.

On the defense side, punitive damages paid are tax deductible. In regard to legal fees, those are typically considered a business expense and, as such, are deductible as well.

For the plaintiff, expect to pay taxes on 100 percent of the cash settlement award—there is no deduction for legal fees. Punitive damages and related interest are taxable.