Deductible

Business, Legal & Accounting Glossary

Definition: Deductible


Quick Summary of Deductible


Purchases that are claimed as business expenses are described as deductible; they reduce business profits but reduce the amount of income tax owed.




What is the dictionary definition of Deductible?

Dictionary Definition


U.S., insurance Amount of expenses that must be paid out of pocket before an insurer will pay any expenses.

(1) as a noun is the amount you have to pay before your insurance company starts paying the bills on covered items.

(2) as an adjective (usually used in the phrase “tax-deductible”) is something that can be subtracted from the amount of money on which you pay taxes.


Full Definition of Deductible


Something that is taken away or subtracted. Under an insurance policy, for example, the deductible is the maximum amount that an insured person must pay toward his own losses before he can recover from the insurer. For example, Julie’s car insurance policy has a $500 deductible. One day she forgets to set her parking brake and the car rolls backwards into a telephone pole, sustaining $2,500 in damage. Julie’s insurance company deducts $500 from the total amount and issues a check to the auto body shop for $2,000.

(1) The deductible will be stated in your insurance policy. For example, a $500 deductible on your auto insurance policy means that if you’re in an accident and it costs $750 to repair your Jeep, you pay the first $500 and the insurance company picks up the remaining $250. That would apply to covered costs, of course.

A higher deductible might mean a lower premium, so you’d pay less in an annual fee to have the insurance policy, but more if something unexpected happens. Or you could pay a higher premium and have a lower deductible. The level of risk assigned to you can influence your deductible; if you’ve had lots of car accidents in the past, your deductible could be quite high (as well as your premium).

(2) Check with the IRS, a tax expert, or other source to find out what expenses are deductible; qualifying expenses change from year to year. You might have to itemize the expenses on your income tax forms to take advantage of tax deductions. Examples of expenses that can be subtracted from the amount you pay taxes on include:

  • Charitable donations.
  • Work-related expenses such as mileage or equipment for a home office.
  • Child-rearing costs.
  • Moving expenses in relation to a new job.
  • Contributions to a retirement fund such as a 401(k) or traditional IRA. Taxes, however, might need to be paid when money is withdrawn from the fund.

Synonyms For Deductible


deduction, set off against, relief, allowance, openness

Cite Term


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https://payrollheaven.com/define/deductible/
Modern Language Association (MLA):
Deductible. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. August 06, 2021 https://payrollheaven.com/define/deductible/.
Chicago Manual of Style (CMS):
Deductible. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/deductible/ (accessed: August 06, 2021).
American Psychological Association (APA):
Deductible. PayrollHeaven.com. Retrieved August 06, 2021, from PayrollHeaven.com website: https://payrollheaven.com/define/deductible/

Definition Sources


Definitions for Deductible are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 4th August, 2021 | 8 Views.