If you get a tax deduction it means you get to reduce the amount of your income that is subject to tax. If something's on sale, you might get a percentage deduction from the original price. Deduction means taking away, or an amount taken away.
If you're a fan of Sherlock Holmes, you already know that the process of logical deduction helps to solve crimes––you take away the information you do know to deduce the answer to what you don't. In figure skating, every mistake on the ice results in a point deduction––the judges take points away.