(1) Subtraction. (2) The reaching of a conclusion by reasoning.
Example:
Foretelling the future by deduction based on a political or economic theory has proved to be extremely difficult.
A tax deduction is a subtraction from your gross income allowed by the government for certain expenses, which will result in your paying lower taxes. To deduct is simply to subtract. 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.