noun de·duc·tion \ di-ˈdək-shən , dē- \
Updated on: 26 Jul 2017

Definition of deduction

1 a :an act of taking away
  • deduction of legitimate business expenses
b :something that is or may be subtracted
  • deductions from his taxable income
2 a :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 1premise 1) — compare induction
b :a conclusion reached by logical deduction
  • made the deduction that the suspect had been at the scene of the crime

Examples of deduction in a Sentence

  1. The government is offering new tax deductions for small businesses.

  2. What is your pay after the deductions have been taken out?

  3. His guess was based on intuition rather than deduction.

  4. Our deduction was based on the information given to us at the time.

  5. It was a logical deduction.

Recent Examples of deduction from the Web

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.

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.

Origin and Etymology of deduction

see deduct

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.

DEDUCTION Defined for English Language Learners



Definition of deduction for English Language Learners

  • : 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 Defined for Kids


noun de·duc·tion \ di-ˈdək-shən \

Definition of deduction for Students

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

Law Dictionary


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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