deduction

noun
de·​duc·​tion | \ di-ˈdək-shən How to pronounce deduction (audio) , dē-\

Definition of deduction

1a : an act of taking away deduction of legitimate business expenses
b : something that is or may be subtracted deductions from his taxable income
2a : the deriving of a conclusion by reasoning based on intuition rather than deduction specifically : inference in which the conclusion about particulars follows necessarily from general or universal premises (see premise entry 1 sense 1) — compare induction
b : a conclusion reached by logical deduction made the deduction that the suspect had been at the scene of the crime

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Synonyms & Antonyms for deduction

Synonyms

abatement, discount, reduction

Antonyms

accession, addition

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Using Deduction Beyond Math

To deduct is simply to subtract. A tax deduction is a subtraction from your taxable income allowed by the government for certain expenses, which will result in your paying lower taxes. Your insurance deductible is the amount of a medical bill that the insurance company makes you subtract before it starts to pay--in other words, the amount that will come out of your own pocket. But deduction also means "reasoning", and particularly reasoning based on general principles to produce specific findings. Mathematical reasoning is almost always deduction, for instance, since it is based on general rules. But when Dr. Watson exclaims "Brilliant deduction, my dear Holmes!" he simply means "brilliant reasoning", since Sherlock Holmes's solutions are based on specific details he has noticed rather than on general principles.

Examples of deduction in a Sentence

The government is offering new tax deductions for small businesses. What is your pay after the deductions have been taken out? His guess was based on intuition rather than deduction. Our deduction was based on the information given to us at the time. It was a logical deduction.
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Recent Examples on the Web

In Hinsdale District 86’s consumer education class, students learn about the facts of life — the financial facts of life, including how to calculate taxes, payroll deductions and credit-card fees. Kimberly Fornek, chicagotribune.com, "Hinsdale District 86 students learn financial literacy in consumer ed class," 11 July 2019 For example, a number of states condition eligibility for tax deductions and eligibility for liquor licenses on (among other factors) the absence of discriminatory membership policies. SI.com, "Why Private Golf Clubs Are Legally Still Able to Discriminate Against Women," 1 July 2019 That meant that people who would have otherwise been eligible for these deductions and credits couldn’t claim them. Darla Mercado, USA TODAY, "You might get these 4 tax breaks back if Congress reinstates deductions," 20 June 2019 In addition, the law also eliminated personal exemptions, increased child credits, limited popular deductions and generally upended many familiar practices that determine what happens at tax time. Sarah Skidmore Sell, The Seattle Times, "I owe how much? Americans shocked by impact of new tax law," 20 Feb. 2019 Say that Susan is a single taxpayer with $30,000 of taxable ordinary income after deductions and exemptions, such as for tax-free municipal-bond interest or the sale of a home. WSJ, "WSJ Tax Guide 2019: Taxes on Investment Income," 15 Feb. 2019 Through the mortgage interest deduction, homeowners are allowed to reduce their taxable income by a sizeable amount. Rose Meily, The Mercury News, "Real estate: Realtors promote National Homeownership Month," 7 June 2019 Each statement must be obtained by applying the rules of logical deduction to the preceding statements. Quanta Magazine, "Why the Proof of Fermat’s Last Theorem Doesn’t Need to Be Enhanced," 3 June 2019 Retirees continue to pay for it through a deduction from their Social Security benefits. WSJ, "Let’s Think Through ‘Medicare for All’ First," 4 Feb. 2019

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'deduction.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of deduction

15th century, in the meaning defined at sense 1a

History and Etymology for deduction

see deduct

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Learn More about deduction

Statistics for deduction

Last Updated

18 Jul 2019

Look-up Popularity

Time Traveler for deduction

The first known use of deduction was in the 15th century

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More Definitions for deduction

deduction

noun

Financial Definition of deduction

What It Is

A deduction is a reduction in taxable income, which thereby lowers the amount of taxes owed. Federal, state, and local tax codes determine what kinds of items or expenses are deductible and which taxpayers are eligible for deductions.

How It Works

For example, if your gross income is $100,000 this year but you qualify for a $10,000 deduction, then you will be taxed on $100,000 - $10,000 = $90,000. If your effective tax rate is, say, 20%, then instead of paying 20% of $100,000 (i.e., $20,000) you can take the deduction and only have to pay 20% of $90,000 ($18,000). The $10,000 tax deduction saves you $2,000.

Notice that a $10,000 tax deduction does not mean you save $10,000 in taxes. This is why it is important to understand the difference between a tax deduction and a tax credit. A tax credit is a dollar-for-dollar reduction in your tax bill. So, if the $10,000 deduction had actually been a tax credit in the example above, you would have paid ($100,000 x 0.20) - $10,000 = $10,000. Compare this with the $18,000 tax bill in the deduction scenario and you can see that tax credits are usually more valuable to taxpayers.

Tax deductions often "phase out" for people with higher incomes. For example, interest paid on student loans is deductible, but if a person's modified adjusted gross income was higher than $50,000 in 2006, only a portion of the interest paid was deductible. If the person's modified adjusted gross income was higher than $65,000, the person was probably not able to deduct any of it.

There are several kinds of tax deductions in the United States. Standard deductions are deductions taxpayers usually take advantage of if they don't qualify for other deductions. When a person "itemizes" his or her deductions, they do so because they qualify for several deductions that exceed the standard deduction. Deciding whether to itemize one's deductions is a matter of knowing the tax rules and consulting a qualified tax accountant.

Why It Matters

Creating, modifying, or eliminating tax deductions are one way for governments to encourage or discourage certain types of economic growth, social behavior, or activities. For example, mortgage interest is tax deductible in part to encourage home ownership in the United States; tuition is often deductible to encourage education; charitable donations are deductible to encourage giving; and business expenses are deductible to encourage entrepreneurship and job creation.

Source: Investing Answers

itemized deduction

noun

Financial Definition of itemized deduction

What It Is

An itemized deduction is a reduction in taxable income that is dependent on calculations specific to the taxpayer's expenses or situation. Federal, state and local tax codes determine what is deductible and which taxpayers are eligible for itemized deductions.

How It Works

There are two kinds of tax deductions: standard and itemized. A standard deduction is a flat amount that applies to all qualified taxpayers. An itemized deduction requires calculations, proof of a qualifying expense, and time to fill out extra IRS forms at tax time. A taxpayer cannot claim standard deductions and itemized deductions; he must choose one.

Generally, if a taxpayer qualifies for a deduction, the taxpayer can subtract the amount of the deduction from his gross income. This in turn lowers the amount of income subject to tax. For example, if your gross income is $100,000 this year but you qualify for a $10,000 standard deduction, then you will be taxed on $100,000 - $10,000 = $90,000. If your effective tax rate is, say, 20%, then instead of paying 20% of $100,000 (i.e., $20,000) you can take the deduction and only have to pay 20% of $90,000 ($18,000). The $10,000 tax deduction saves you $2,000.

Itemized deductions often “phase out” for people with higher incomes. After all, creating, modifying, or eliminating tax deductions are one way for governments to encourage or discourage certain types of economic growth, social behavior, or activities.

Why It Matters

There are several kinds of tax deductions in the United States. Standard deductions are deductions taxpayers usually take advantage of if they don’t qualify for other deductions. Though taking a standard deduction is much easier and less time-consuming, when a person itemizes her deductions, she does so because she qualifies for several deductions that exceed the standard deduction. Deciding whether to itemize one’s deductions is a matter of knowing the tax rules and consulting a qualified accountant.

Source: Investing Answers

marital deduction

noun

Financial Definition of marital deduction

What It Is

The marital deduction refers to the deduction the IRS allows for a taxpayer to transfer some or all of his assets tax free to his spouse prior to the calculation of estate tax owed by his estate.

How It Works

The marital deduction is also known as the unlimited marital deduction.

The IRS treats a married couple as one economic entity. Estate tax is imposed only upon the demise of that economic entity. The marital deduction from the estate tax due is allowed upon the death of either husband or wife, as long as the spouse is a US citizen.

Upon the death of the surviving spouse, the entire remaining estate is taxed. Certain tax planning strategies are available to minimize this total effect.

Why It Matters

This marital deduction is important to take into estate planning considerations as the estate tax due on the entire estate of the husband and the wife is postponed until the demise of both.

Source: Investing Answers

standard deduction

noun

Financial Definition of standard deduction

What It Is

A standard deduction is a reduction in taxable income. Federal, state and local tax codes determine what is deductible and which taxpayers are eligible for deductions.

How It Works

There are two kinds of tax deductions: standard and itemized. A standard deduction is a flat amount that applies to all qualified taxpayers. An itemized deduction requires calculations, proof of a qualifying expense, and time to fill out extra IRS forms at tax time. A taxpayer cannot claim standard deductions and itemized deductions; he must choose one.

Generally, if a taxpayer qualifies for a standard deduction, the taxpayer can subtract the amount of the deduction from his gross income. This in turn lowers the amount of income subject to tax. For example, if your gross income is $100,000 this year but you qualify for a $10,000 standard deduction, then you will be taxed on $100,000 - $10,000 = $90,000. If your effective tax rate is, say, 20%, then instead of paying 20% of $100,000 (i.e., $20,000) you can take the deduction and only pay 20% of $90,000 ($18,000). The $10,000 tax deduction saves you $2,000.

Standard tax deductions are often promoted as tax deductions that apply to "everyone," but in fact they often "phase out" for people with higher incomes. After all, creating, modifying or eliminating tax deductions are one way for governments to encourage or discourage certain types of economic growth, social behavior or activities.

Why It Matters

There are several kinds of tax deductions in the United States. Standard deductions are deductions taxpayers usually take advantage of if they don’t qualify for other deductions. Though taking a standard deduction is easier and less time-consuming, when a person itemizes her deductions, she does so because she qualifies for several deductions that exceed the standard deduction. Deciding whether to itemize one’s deductions is a matter of knowing the tax rules and consulting a qualified accountant.

Source: Investing Answers

deduction

noun

English Language Learners Definition of deduction

: the act of taking away something (such as an amount of money) from a total
: something (such as an amount of money) that is or can be subtracted from a total
: the act or process of using logic or reason to form a conclusion or opinion about something : the act or process of deducing something

deduction

noun
de·​duc·​tion | \ di-ˈdək-shən How to pronounce deduction (audio) \

Kids Definition of deduction

2 : an amount deducted
3 : a conclusion reached by reasoning Her deduction was based on all the clues.

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deduction

noun
de·​duc·​tion

Legal Definition of deduction

1 : an amount allowed by tax laws to be subtracted from income in order to decrease the amount of income tax due — see also Internal Revenue Code — compare credit, exclusion, exemption
business deduction
: a deduction usually taken from gross income that is allowed for losses or expenses attributable to business activities or to activities engaged in for profit
charitable deduction
: a deduction allowed for a contribution to a charity usually that is qualified under the tax law (as sections 170 and 2055 of the Internal Revenue Code)
dependency deduction
: a deduction allowed to be taken in a set amount for a qualified dependent (as under sections 151 and 152 of the Internal Revenue Code)
itemized deduction
: a deduction for a specifically recorded item that is allowed to be taken from adjusted gross income if the total of such deductions exceeds the standard deduction
marital deduction
1 : a deduction allowed under the Internal Revenue Code to be taken from the gross estate that amounts to the value of any property interest which is included in the estate and which was given by a decedent to the surviving spouse provided that the interest is not terminable during the life of the survivor
2 : a deduction allowed under the Internal Revenue Code of the value of any gift inter vivos subject to gift tax by one spouse to the other
personal deduction
: a deduction allowed to be taken for losses or expenses that are not necessarily attributable to a business activity or an activity engaged in for profit
personal exemption deduction
: a deduction for an amount set by tax law that under section 151 of the Internal Revenue Code includes the dependency deduction
standard deduction
: a deduction of an amount set by tax law that is allowed to be taken from adjusted gross income unless the taxpayer elects to itemize deductions
2 in the civil law of Louisiana : an item of property or an amount that an heir has a right to take from the mass of the succession before any of it is partitioned (as for a debt owed by the deceased to the heir)

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Comments on deduction

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appealing forcibly to the mind or reason

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