Final answer:
Interest from money market accounts is taxed as it is earned, while other forms of interest such as from U.S. Savings Bonds issued at a discount, accrued market premium, or accrued market discount on taxable bonds may have different tax treatments. Therefore, the correct answer is D, interest from money market accounts.
Step-by-step explanation:
The question of which type of interest income is taxed as it is earned concerns various financial products and their tax implications. To answer your question, interest from money market accounts (D) is typically taxed as it is earned. Money market accounts usually generate interest income that is subject to tax in the year it is credited to the investor’s account.
Discussing other options, the interest from U.S. Savings Bonds issued at a discount (A) is not necessarily taxed as earned because it can be deferred until maturity or redemption. Similarly, for tax purposes, accrued market discount (C) on bonds is generally taxable upon sale or redemption of the bond, not as it accrues. However, accrued market premium (B) on taxable bonds can be amortized over the life of the bond, which may affect the amount of interest income to be reported each year. Therefore, the correct answer is D.