Intuit Academy Tax Practice Exam 2026 – All-in-One Guide for Exam Mastery!

Question: 1 / 400

Is a penalty for early withdrawal of a certificate of deposit (CD) an allowable tax deduction?

Yes, always deductibles

No, it is not deductible

The penalty for early withdrawal of a certificate of deposit (CD) is not deductible on your tax return. This is because the IRS considers such penalties to be a personal expense rather than a business-related one or an investment expense that could be deducted. The penalty is essentially a cost imposed for accessing funds before the maturity date, and the tax code does not allow deductions for personal penalties of this sort.

While other financial expenses may sometimes be deductible under specific circumstances, penalties for early withdrawal are explicitly excluded, which makes this answer clearly correct. Understanding this distinction helps taxpayers avoid errors in their tax filings by ensuring they only claim deductions that the IRS permits.

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Yes, but only partially

No, only if penalties exceed $500

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