Wilma has a $25,000 certificate of deposit (CD)at the local bank. The interest on this certificate, $1,000, was credited to her account this year, but she must pay an early withdrawal penalty if she cashes in the CD before next year. Which of the following is a true statement?
A)Wilma must include the $1,000 of interest in her income this year.
B)Wilma must include the $1,000 of interest in her income when she cashes the CD.
C)Wilma must include the $1,000 of interest in her income this year only if the bank waives the early withdrawal penalty.
D)Wilma must include the $1,000 of interest in her income next year if she does not pay the early withdrawal penalty.
E)All of the choices are correct.

Question

Quizplus · Accepted Answer

Wilma must include the $1,000 of interest in her income this year regardless of whether she chooses to withdraw the CD early or not. The interest earned on a CD is taxable income in the year it is earned, even if it is not yet received. The early withdrawal penalty is a separate issue and does not impact the taxation of the interest income.

Wilma Has a $25,000 Certificate of Deposit (CD)at the Local