DEFINITION of 'Deductible'

1. The amount you have to pay out-of-pocket for expenses before the insurance company will cover the remaining costs.

2. An amount subtracted from an individual's adjusted gross income to reduce the amount of taxable income.

Also known as "tax deductible."


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BREAKING DOWN 'Deductible'

1. For example, if you get into an accident and your medical expenses are $2,000 and your deductible is $300, then you would have to pay the $300 out-of-pocket first before the insurance company paid the remaining $1,700. However, if your accident only resulted in $300 in medical expenses, then you would pay the $300 deductible and the insurance company would pay nothing.

2. There are many types of expenses you can use to reduce the amount of your taxable income such as healthcare expenses, interest expenses (i.e. mortgages, car loans), legal fees and investment-related expenses. However, for those with brokerage accounts, fees such as commissions paid for trades are not deductible.

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