Key takeaways
What this article covers, in order:
- Why "above the line" matters more than the label suggests
- The Schedule 1 list of adjustments to income
- The new OBBBA deductions are not above the line
- Worked example: a Denver freelance UX designer, tax year 2026
- Common mistakes with adjustments to income
- hellobooks-helps-you-claim-adjustments-accurately">How HelloBooks helps you claim adjustments accurately
Above-the-line deductions, which the IRS calls adjustments to income, are subtracted from your total income before you reach adjusted gross income (AGI), so you get them whether you take the standard deduction or itemize. They are listed in Part II of Schedule 1 (Form 1040) and include the HSA deduction, half of self-employment tax, self-employed health insurance, SEP and SIMPLE contributions, IRA contributions, student loan interest and a handful of narrower items.
Because they shrink AGI itself, these deductions do more than lower taxable income. AGI is the number that decides whether you qualify for many credits, phase-outs and the newer deductions created by the One Big Beautiful Bill Act (OBBBA). For a self-employed person, the adjustments are often the largest deductions on the return after Schedule C expenses.
Why "above the line" matters more than the label suggests
The "line" is AGI. Everything above it reduces AGI; everything below it (the standard deduction, itemized deductions, the qualified business income deduction and the new Schedule 1-A deductions) reduces taxable income only after AGI is fixed.
That distinction has real consequences:
- Phase-outs key off AGI or modified AGI. The student loan interest deduction, IRA deduction limits, Roth IRA eligibility and the new senior deduction all phase out as income rises. A lower AGI can keep you inside a range you would otherwise exceed.
- You keep them even if you don't itemize. With the 2026 standard deduction at $16,100 for single filers and $32,200 for married couples filing jointly (Rev. Proc. 2025-32), most households will not itemize, so adjustments are often the only deductions beyond the standard amount they can actually use.
- Some state returns start from federal AGI. If yours does, an adjustment can flow through to your state tax as well. Check your state's instructions.
The Schedule 1 list of adjustments to income
These are the lines in Part II of the 2025 Schedule 1, with the limits that apply for 2025 and, where published, 2026.
Educator expenses
Eligible K-12 teachers, instructors, counselors, principals and aides who work at least 900 hours in a school year can deduct unreimbursed classroom costs: up to $300 for 2025 ($600 if both spouses are educators filing jointly, but no more than $300 each) and up to $350 per educator for 2026. Starting in 2026, educators can also claim certain expenses as an itemized deduction; the qualifying expense types differ slightly between the two.
Business expenses of reservists, performing artists and fee-basis officials
A narrow group can deduct certain employee business expenses here using Form 2106. Most W-2 employees cannot deduct unreimbursed work expenses at all.
Health savings account deduction
Contributions you make to an HSA yourself (not through payroll) are deducted on Form 8889. The 2026 limits are $4,400 for self-only coverage and $8,750 for family coverage, plus $1,000 if you are 55 or older (Rev. Proc. 2025-19 and Publication 969). For 2025 the limits were $4,300 and $8,550.
Moving expenses for members of the Armed Forces
Only active-duty military members moving under a permanent change of station can deduct moving costs, on Form 3903. Civilians cannot.
Deductible part of self-employment tax
If you pay self-employment tax on Schedule SE, half of it is an adjustment. You don't have to spend anything extra to get it, but you do need accurate Schedule C profit to calculate it.
Self-employed SEP, SIMPLE and qualified plans
Sole proprietors and partners deduct contributions to their own retirement plans here. For a SEP, the dollar cap for 2026 is $72,000 (up from $70,000 for 2025), and a self-employed person's own contribution works out to 20% of net self-employment earnings after subtracting half of self-employment tax, per Publication 560.
Self-employed health insurance
If you have a net profit and are not eligible for an employer-subsidized health plan in a given month, you can deduct medical, dental and qualifying long-term care premiums for yourself, your spouse and dependents, figured on Form 7206. The deduction cannot exceed the earned income from the business under which the plan is set up.
Penalty on early withdrawal of savings
If a bank charged you for breaking a certificate of deposit early, the penalty shown on Form 1099-INT is deductible here.
Alimony paid
Only payments under a divorce or separation agreement executed before 2019 qualify. Agreements signed after 2018 give the payer no deduction.
IRA deduction
Traditional IRA contributions can be deducted up to $7,000 for 2025 ($8,000 at age 50 or older) and $7,500 for 2026 ($8,600 at 50 or older). If you or your spouse are covered by a workplace plan, the deduction phases out by income. For 2026, the range for a covered single filer is $81,000 to $91,000 of modified AGI.
Student loan interest
Up to $2,500 of interest on qualified education loans. For 2025, the deduction phases out between $85,000 and $100,000 of modified AGI ($170,000 to $200,000 joint). For 2026 the range is $85,000 to $100,000 single and $175,000 to $205,000 joint.
Archer MSA deduction and other adjustments
Line 24 collects rarer items: jury duty pay you handed over to your employer, expenses tied to renting personal property for profit, reforestation costs, certain attorney fees in discrimination and whistleblower cases, the foreign housing deduction and a few others. If one applies to you, the Schedule 1 instructions explain each.
The new OBBBA deductions are not above the line
This is the point most summaries get wrong. The deductions for qualified tips, qualified overtime, car loan interest and the enhanced deduction for seniors (all for 2025 through 2028) are calculated on the new Schedule 1-A and carried to line 13b of Form 1040, after AGI. You can claim them whether or not you itemize, which makes them feel like adjustments, but they do not reduce AGI. That matters because each of them has its own modified-AGI phase-out, and reducing AGI with genuine adjustments is what keeps you under those thresholds.
Worked example: a Denver freelance UX designer, tax year 2026
Maya runs a one-person UX design business as a sole proprietor. For 2026 her Schedule C shows net profit of $92,000, and she has no other income.
- Half of self-employment tax. Her net earnings subject to SE tax are 92.35% of profit, about $84,962. SE tax at 15.3% is about $12,999, so half, about $6,500, is an adjustment.
- Self-employed health insurance. She pays $6,000 in marketplace premiums and has no access to an employer plan. Her profit easily covers it, so the full amount is deductible.
- SEP-IRA contribution. Her ceiling is roughly 20% of ($92,000 minus $6,500), or about $17,100. She contributes $10,000, comfortably inside the limit.
- Student loan interest. She paid $1,800. Her modified AGI will be well under $85,000, so there is no phase-out.
Total adjustments: $6,500 + $6,000 + $10,000 + $1,800 = $24,300. Her AGI drops from $92,000 to $67,700. Only then does she subtract the 2026 standard deduction of $16,100 and any qualified business income deduction. Without the SEP and insurance adjustments, the modified AGI used for her student loan test (AGI before the student loan deduction) would have been $85,500, just inside the phase-out range, so part of her interest deduction would have been lost.
Common mistakes with adjustments to income
- Deducting payroll HSA contributions twice. Money your employer puts in, including salary you elected through a cafeteria plan, is already excluded from your W-2 wages. Only contributions you made directly go on Schedule 1.
- Putting health insurance or retirement contributions on Schedule C. For a sole proprietor, your own premiums and SEP contributions belong on Schedule 1, not as business expenses. Moving them to Schedule C would wrongly reduce self-employment tax.
- Ignoring the employer-plan test for health insurance. If you or your spouse could join a subsidized employer plan in a given month, that month's premiums don't qualify, even if you declined the coverage.
- Treating Schedule 1-A deductions as AGI reducers. Tips, overtime, car loan interest and senior deductions come after AGI.
- Missing the IRA deadline. IRA contributions for a year must be made by the original return due date, not the extended date. SEP contributions, by contrast, can be made up to the extended due date.
hellobooks< / a > -helps-you-claim-adjustments-accurately">How HelloBooks helps you claim adjustments accurately
Most of the self-employed adjustments depend on one figure: a correct Schedule C profit. HelloBooks keeps that figure honest. Bank feeds and AI auto-categorization sort business transactions as they arrive, document extraction pulls the amount and vendor from receipts and statements, and the P&L report gives you a year-end profit you can hand to your tax preparer. You can tag personal items like health insurance premiums, SEP transfers and HSA deposits to separate accounts so they don't land in business expenses by mistake, and export the ledger to CSV when it's time to prepare the return. A person still reviews the categories; the software just does the sorting and keeps the audit trail.
This is general information as of November 2026, not tax advice. Limits change each year, so check the current Schedule 1 instructions on irs.gov or ask a CPA or enrolled agent about your situation.
