Yes, you can deduct the early withdrawal penalty - but only for a taxable CD. When you enter the interest income on Form 1099-INT, check the box beside 'My form has info in more than one box 1'. Then enter the penalty in box 2. That will reduce your adjusted gross income by the penalty amount.
For a CD that is held within an IRA, there is no taxable event and nothing to deduct.
Any early withdrawal penalties will be included in box 2 of your 1099-INT form from the issuing institution and clearly labeled “early withdrawal penalty.”
Yes, you can deduct the early withdrawal penalty - but only for a taxable CD. When you enter the interest income on Form 1099-INT, check the box beside 'My form has info in more than one box 1'. Then enter the penalty in box 2. That will reduce your adjusted gross income by the penalty amount.
For a CD that is held within an IRA, there is no taxable event and nothing to deduct.
Any early withdrawal penalties will be included in box 2 of your 1099-INT form from the issuing institution and clearly labeled “early withdrawal penalty.”
Thank you, issue solved. I was not aware of 'checking the box" that would give me those options. May I ask you one more question? I cashed in a mature EE bond in 11/22. I know that tax is due on the interest (8K), I have entered info correctly, but TT shows that I have a penalty for underpaying my estimated taxes. I do not estimate any taxes, I am concerned that TT may not be handling this correctly.
The IRS calls it “Underpayment of Estimated Taxes,” but that can be a little misleading. While the penalty (reported on Form 2210) is more commonly incurred by self-employed people who do make estimated payments (or should), it’s also relevant for anyone who underpays their taxes during the year (with a withholding plus refundable credits total which is $1,000 less than the tax liability on their return). The IRS gives a summary of this here.
Note that there are some nuances to this. If your income suddenly jumped (hopefully because you won the lottery) this year, you can avoid the penalty by having withholding and refundable credits equal to last year’s tax. You can also possibly reduce the penalty (with the “annualized method”) if you income was inconsistent (especially if it was significantly higher later in the year). TurboTax will explore these things with you to make sure the penalty is correct, @whaag, but hopefully I’ve answered your most recent question.