Lesson: Penalty on Early Withdrawal of Savings

In this lesson, Nick Palazzolo, CPA, breaks down the specifics of the penalty on early withdrawal of savings, clarifying how individuals can adjust their gross income to accommodate this scenario. He delves into what constitutes a penalty for early withdrawal from accounts like savings accounts and certificates of deposit, and why financial institutions enforce them. Further, Nick methodically explains the process of reporting the penalty on Form 1040 Schedule 1, demonstrating the practical steps of how it reduces an individual's AGI and taxable income. With handy show-and-tell of the tax forms, he makes it incredibly clear how different income adjustments and deductions flow through to the 1040 form, providing a tangible sense of organization to what could be an overwhelming pile of paperwork.