AGI Adjustments


Self-employed persons may now deduct from gross income 100% of amounts paid during the year for health insurance for themselves, spouses, and dependents. The deduction is limited to the taxpayer’s net earned income derived from the trade or business for which the insurance plan was established, minus the deductions for 50% of the self-employment tax and/or the deduction for contributions to Keogh, self-employed SEP or SIMPLE plans.


Interest paid during the year on any qualified education loan is deductible from gross income. The maximum deductible amount of interest is $2,500. The deduction phases out for individuals with AGI over $50,000 ($100,000 for married filing jointly).


For payments made in tax years beginning after 2001 and before 2006, individuals are permitted to take an “above-the-line” deduction for qualified higher education expenses paid during the tax year. The maximum deduction is $4,000 in 2005. It is generally available to taxpayers with AGI (adjusted gross income) below $65,000 ($130,000 if married filing jointly), but it must be coordinated with educational credits.

The term “qualified higher education expenses” means tuition and fees required for the enrollment or attendance of 1) the taxpayer, 2) the taxpayer’s spouse, or 3) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction, at an eligible education institution for courses of instruction of such individual at such institution. Generally, any accredited, public, nonprofit, or proprietary post-secondary institution is an eligible education institution.