It reduces one's income (3)
I believe the answer is:
tax
'income' is the definition.
(tax income is a kind of income)
'it reduces one's' is the wordplay.
'reduces' means to remove the first letter (I've seen 'reduced' mean this).
'one's' becomes 'ax' (I am not sure about this - if you are sure you should believe this answer much more).
'it' with its first letter taken off is 't'.
't'+'ax'='TAX'
Can you help me to learn more?
(Other definitions for tax that I've seen before include "Be trying" , "E.g. VAT" , "Strain - duty" , "Are demanding" , "Charge levied by the state" .)