Is a government fine or penalty not deductible or line 23?

The license fee or tax itself is deductible on line 23, but the penalty for paying it late is not deductible at all.

Is a government fine or penalty not deductible or line 27a?

A contractual late fee or liquidated damages owed to a private customer or supplier is an ordinary expense and is usually itemised on line 27a, unlike a government fine.

Are fines and penalties deductible? Not Deductible

Q: Are fines and penalties deductible?

A government fine or penalty is not deductible on Schedule C. A fine or penalty paid to a government for violating a law is not deductible, however directly it arose from the work. That covers parking and traffic tickets, regulatory fines, late filing and late payment penalties on taxes, and penalties for missing a payroll deposit. Two things are often confused with it: an amount identified in a court order or settlement as restitution or as the cost of coming into compliance with the law can be deductible, and a penalty paid to a private party under a contract is an ordinary business expense rather than a fine.

Short answer Not deductible

A government fine or penalty is not a deductible business expense.

Why it is not deductible

A fine or penalty paid to a government for violating a law is not deductible, however directly it arose from the work. That covers parking and traffic tickets, regulatory fines, late filing and late payment penalties on taxes, and penalties for missing a payroll deposit. Two things are often confused with it: an amount identified in a court order or settlement as restitution or as the cost of coming into compliance with the law can be deductible, and a penalty paid to a private party under a contract is an ordinary business expense rather than a fine.

Log it once, with the line already on it. Type an expense in plain words in ClaryBook and it is filed with a date, vendor, amount and what it was for, so the number your preparer needs for a government fine or penalty is already written down.

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What a government fine or penalty is confused with

Line 23, taxes and licenses: The license fee or tax itself is deductible on line 23, but the penalty for paying it late is not deductible at all.
Line 27a, other expenses: A contractual late fee or liquidated damages owed to a private customer or supplier is an ordinary expense and is usually itemised on line 27a, unlike a government fine.
Line 16b, interest, other: Interest charged on an underpaid business tax is treated as interest rather than as a penalty, which is a different line and a different answer.

Examples people try to deduct here

A $65 parking ticket collected during a delivery round, which gives no deduction
A $1,200 regulatory fine from a state board, which gives no deduction
A $340 late filing penalty on a sales tax return, which gives no deduction
A $780 penalty for a late payroll tax deposit, which gives no deduction
A $2,500 contractual late delivery charge owed to a customer, which is an ordinary expense

What does not belong here

A line 23 entry for a tax penalty.
A parking ticket grouped with parking fees on line 9.
A regulatory fine itemised on line 27a as a cost of doing business.
A penalty treated as deductible because the business, not you personally, paid it.

What to keep

Keep the notice itself so the nature of the charge is clear, and keep any court order or settlement wording that identifies an amount as restitution or compliance cost, because that wording is what makes such an amount deductible.

Other things that are not deductible

Expense	Line
a business suit	Not deductible
a parking ticket	Not deductible
a personal expense on the business card	Not deductible
a spouse's airfare on your business trip	Not deductible
a traffic ticket	Not deductible
an unpaid invoice	Not deductible
commuting mileage	Not deductible
country club dues	Not deductible
estimated tax payments	Not deductible
federal income tax	Not deductible
groceries for your home	Not deductible
interest on underpaid federal income tax	Not deductible

Related lookups

Sources

This page explains how Schedule C lines work. It is general information, not tax advice for your situation. If an expense is large or the answer turns on a fact about your business, confirm it with your tax preparer.

Looking for a different expense? The full Schedule C line lookup has every line from 8 to 27 with the expenses that belong on each, and Schedule C expense categories walks the whole form in order.

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