What are “above-the-line deductions” (aka “adjustments”)?

They’re deductions you take before calculating AGI—generally on Schedule 1 (Form 1040), Part II—so you benefit whether you take the standard deduction or itemize. Think HSAs, student-loan interest, certain self-employed deductions, and more. Lower AGI can increase eligibility for credits and reduce phase-out pain. IRS

The 2025 short list

1) Health Savings Account (HSA) deduction

  • Limits (2025): $4,300 self-only; $8,550 family. (Catch-up +$1,000 if age 55+.) Contributions reduce your AGI; distributions for qualified medical expenses are tax-free. Amounts are indexed annually. IRS+1
  • You’ll also complete Form 8889 with your return. IRS

2) Educator expense deduction

  • K-12 educators can deduct up to $300 of unreimbursed classroom expenses ($600 MFJ if both spouses are eligible educators, max $300 each). IRS+1

3) Student loan interest deduction

  • Deduct up to $2,500 of qualified student-loan interest. The benefit phases out as MAGI rises; phase-out thresholds are indexed annually—check the current limits before filing. IRS

4) Self-employment must-knows (three big adjustments)

  • One-half of SE tax is deductible as an adjustment to income. This happens automatically when you file Schedule SE. IRS+1
  • Self-employed health insurance premiums (medical/dental/vision; certain LTC limits) are deductible via Form 7206 (then carried to Schedule 1). Not allowed for any month you were eligible for an employer-subsidized plan. IRS+1
  • Self-employed retirement plans (SEP, SIMPLE, solo 401(k)) are deductible on Schedule 1—not on Schedule C. Limits are inflation-adjusted annually; for 2025, 401(k) elective deferrals are $23,500 and the IRA contribution limit remains $7,000 (separate IRA deduction phase-outs below). IRS+1

5) Traditional IRA deduction (and its 2025 phase-outs)

  • If you (or your spouse) are covered by a workplace plan, the deductible IRA amount phases out based on MAGI. For 2025, the phase-outs are:
    • Single/Head of Household $79,000–$89,000
    • Married Filing Jointly (covered spouse) $126,000–$146,000
    • MFJ (contributor not covered; spouse is) $236,000–$246,000
    • MFS (covered) phase-out unchanged (very low range)
    These numbers adjust for inflation; confirm before filing. IRS

6) Penalty on early withdrawal of savings (CDs, etc.)

  • If you paid a bank penalty for cashing a time deposit early (often shown on Form 1099-INT, Box 2), you can deduct that penalty as an adjustment on Schedule 1. (This is not the 10% retirement early-distribution tax.) IRS+1

7) Moving expenses — armed forces only

  • The moving-expense deduction is suspended for most taxpayers. It’s available only to active-duty U.S. Armed Forces members moving under military orders (use Form 3903). IRS

8) Alimony paid (only certain older agreements)

  • Not deductible for divorce/separation agreements executed after 12/31/2018 (or modified to adopt the post-2018 rule). Some pre-2019 instruments remain deductible by the payer and taxable to the recipient. IRS

9) Special employee categories (still above-the-line)

  • Armed Forces reservists, qualified performing artists, and fee-basis state/local officials can deduct certain unreimbursed employee expenses using Form 2106—the allowable amount flows to Schedule 1 as an adjustment. IRS+1

Texas note: Texas has no personal income tax, but these federal adjustments still reduce your federal AGI and can influence eligibility for other federal credits.

Quick workflow (owner edition)

  1. List which adjustments apply (HSA, SE health insurance, SEP/SIMPLE, student-loan interest, etc.).
  2. Gather forms: 8889 (HSA), 7206 (SE health insurance), 2106 (if applicable), Schedule SE, Form 3903 (military moves). IRS+2IRS+2
  3. Enter them on Schedule 1, Part II; confirm 2025 inflation-indexed figures (many update yearly each fall). IRS

Common mistakes (and easy fixes)

  • Claiming the wrong “penalty.” The bank early-withdrawal penalty is deductible; the 10% retirement early-distribution tax is not. IRS
  • Putting SE plan deductions on Schedule C. They belong on Schedule 1. IRS
  • Forgetting HSA catch-up (55+). Add the $1,000 if eligible. IRS
  • Using outdated IRA phase-outs. Use the 2025 ranges shown above (indexed annually). IRS

FAQ

Do I still get the educator deduction if I take the standard deduction? Yes—these are above-the-line adjustments; itemizing isn’t required. IRS

Are student-loan phase-outs the same every year? No. They’re inflation-indexed, so verify the current ranges for your filing status before claiming. IRS

Want a 10-minute “AGI tune-up” for 2025? Book a 15-minute Finpilot360 consult, and we’ll stack your above-the-line deductions the right way.
Keep an eye out for the next post (Part 5): Itemized Deductions vs. Standard Deduction—What Works Best for You?

Source highlights (for readers & AI)

  • AGI & Schedule 1 (adjustments). IRS+1
  • HSA limits 2025 & catch-up. IRS+1
  • Educator expense $300. IRS+1
  • Student-loan interest (up to $2,500; phased-out by MAGI). IRS
  • IRA limits/phase-outs (2025). IRS+1
  • Half SE tax deduction. IRS
  • SE health insurance (Form 7206). IRS
  • SE plan deduction on Schedule 1. IRS
  • Bank early-withdrawal penalty is deductible; 10% retirement penalty isn’t. IRS+1
  • Moving expenses—armed forces only. IRS
  • Special employee categories via Form 2106. IRS