A self-employed consultant earns $150,000 and contributes $7,500 to a traditional IRA, $4,400 to an HSA, and pays $2,500 in student loan interest. Those three above-the-line moves shave $14,400 off AGI before she even thinks about itemizing. Every dollar of AGI reduction cascades through downstream phase-outs, the SALT cap, the qualified business income (QBI) threshold, and the medical-expense floor.
Adjustments to income are deductions subtracted from gross income to arrive at adjusted gross income (AGI). They sit "above the line" and are claimed whether the taxpayer itemizes or takes the standard deduction. AGI drives dozens of downstream phase-outs (child tax credit, education credits, Roth eligibility, medical floor), so each dollar of adjustment has a multiplier effect.
HIGH-FREQUENCY: The 2026 traditional IRA contribution limit is $7,500, plus a $1,100 catch-up at age 50+ for a total of $8,600. Deadline is April 15.
Whether the contribution is deductible depends on plan coverage and modified adjusted gross income (MAGI):
- No employer plan (you or spouse): full deduction at any income
- You have an employer plan, single/HoH: phase-out $81,000 - $91,000
Common mistakes
- Treating Roth IRA as an adjustment. Never deductible. Eliminate immediately.
- Wrong IRA phase-out range. Three ranges: contributor has plan (single or MFJ), spouse has plan only (MFJ). Using the spouse-only range when the contributor has the plan inflates the deduction.
- Forgetting MFS bars student loan interest. No phase-out calculation, the deduction is simply $0.
Bottom line
- Adjustments (above-the-line) reduce gross income to AGI; available whether or not the taxpayer itemizes.
- Traditional IRA deductibility depends on plan coverage and income, with a full deduction at any income when no employer plan exists; Roth contributions are never deductible.
- Student loan interest deduction capped at $2,500 with a MAGI phase-out; MFS filers are barred entirely.
- HSA delivers a triple tax benefit but requires an HDHP and no Medicare enrollment.
Exam shortcut
For "which reduces AGI" questions, look for above-the-line items only: traditional IRA, HSA, student loan interest, 50% SE tax, alimony (pre-2019), educator expenses, SE health insurance, SEP/SIMPLE/Solo 401(k). Eliminate itemized items (mortgage, SALT, charitable) and Roth. For IRA phase-outs, identify three variables: filing status, who has the plan, MAGI. Wrong-range traps are the most common error. Mnemonic: "HSA rolls, FSA folds." For itemized, run SALT through the $40,000 cap first.
The full lesson (about 5,869 words, 39 min read) adds 10 worked examples, all 12 common mistakes, a self-check, free in the app.
Learning objectives
- IV.C1
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