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Deductible

Deductible

(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.

Contents

Expanded Definition

(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 Taxes, however, might need to be paid when money is withdrawn from the fund.

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