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| For the year ended December 31, 2012, Elmer Shaw earned $3,000 interest at Prestige Savings Bank, on a time savings account scheduled to mature in 2015. In March 2013, before filing his 2012 income tax return, Shaw incurred an interest forfeiture penalty of $1,500 for premature withdrawal of the funds from his account. Shaw should treat this $1,500 forfeiture penalty as a A. Reduction of interest earned in 2012, so that only $1,500 of such interest is taxable on Shaw’s 2012 return. B. Deduction from 2013 adjusted gross income, deductible only if Shaw itemizes his deductions for 2013. C. Deduction from gross income in arriving at 2013 adjusted gross income. D. Penalty not deductible for tax purposes. |