for the year ended december 31 2006 don raff earned 1 000 interest at ridge savings 624112
For the year ended December 31, 2006, Don Raff earned $1,000 interest at Ridge Savings Bank on a certificate of deposit scheduled to mature in 2008. In January 2007, before filing his 2006 income tax return, Raff incurred a forfeiture penalty of $500 for premature withdrawal of the funds. Raff should treat this $500 forfeiture penalty as a
- Reduction of interest earned in 2006, so that only $500 of such interest is taxable on Raff’s 2006 return.
- Deduction from 2007 adjusted gross income, deductible only if Raff itemizes his deductions for 2007.
- Penalty not deductible for tax purposes.
- Deduction from gross income in arriving at 2007 adjusted gross income.