How to change image bounding box before tracing in Adobe Illustrator?

so for example I have this PNG image pasted into Adobe Illustrator.

This is how the bounding box looks from close up.

When I do a live trace, the top edge of the head becomes flat, because the bounding box is limiting the size of the image.

I have tried work arounds like pasting the image to another program and increasing the artboard size, so that when I paste it back in Illustrator the bounding box is larger, but all the pasting results in quality loss. I also tried drawing a rectangle around the image and making a clipping mask to increase the bounding box size, but a clipping mask can't be traced.

How do I solve this issue of circular objects becoming flat if there is no space between them and the edge of the bounding box?