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Deductibility

The ability to deduct certain items from income in order to reduce tax liability. In many countries, including the US, individuals can deduct certain contributions to charities from gross income to arrive at taxable income. The argument for this deduction is to encourage donations to worthy causes, by lowering the net cost to individual donors, while decentralizing the decision as to what causes should be supported. Similarly, in many corporate tax systems firms are able to deduct interest payments from gross profit to arrive at taxable profit. The economic justification for this deduction is that interest is a business ejqpense so should be treated in the same way as other expenses.

Reference: Oxford Press Dictonary of Economics, 5th edt.