Ah, we have another tax panic going on. Last fall it was that all business deductions would go away. (If you're self-employed, they didn't.) Summing up the latest hysteria is a Politico story titled "Hidden Blacklist in GOP Tax Law Could Hit Everyone From LeBron James to Doctors."

Time to step back, take a deep breath, and put down the coffee -- 'cause it's only wiring you up. For my fellow members of the self-employed set, some reading and planning will go a long way toward sanity, greater productivity, and fewer fingernail gouges in the arms of your office chair.

A provision of the tax cut bill passed and signed last December offers a special break for pass-through business structures: sole proprietorship, partnership, S corporation, LLC, trust and estate, REIT, qualified cooperative, or tiered pass-through (such as one LLC owning another).

According to the Brookings Institution, that's 95 percent of all businesses and 56 percent of all business-owner income.

Owners of a pass-through business get to deduct an additional 20 percent of their income. C corporations -- the type of structure used by many large businesses -- were given a flat 21 percent tax rate. As the rationale (or rationalization, if you ask me) of the tax bill was to support more hiring and capital investment to grow the economy, the GOP tax cut plan provided incentives to pass-throughs.

The fact that 70 percent of partnership income is collected by the top 1 percent of the economic ladder, of course, had nothing to do with it.

But there are restrictions:

  • In general, there are limits to the deduction based on the amount of employee wages your company pays a year and the depreciable property it has.
  • Pass-through businesses in which the real asset is the skill or reputation of the employees or owners are treated differently, with hard limits on how much they can deduct.
  • It will be up to the IRS to determine which types of business fall into the above category.

The Politico story echoes the concerns I've heard among the self-employed. They aren't sure if their businesses might fall into the special category and if they are entitled to the tax break.

There are significant and large categories in the special category, including doctors, attorneys, CPAs, consultants, actuaries, performing artists, professional athletes, and financial services businesses. (Engineers and architects aren't on the list.)

All of this comes into play only if you make more than threshold amounts. If your taxable income (after all those business expenses that you get to keep) is less than $157,500, or $315,000 if you file jointly, then it doesn't matter whether your pass-through business is in the special category or not. You get the extra 20 percent deduction.

If you make more than $157,500 (filing singly) or $315,000 (filing jointly) and less than $207,500 (singly) or $415,000 (jointly), the deduction phases out and depends on exactly where your income falls. Make over the top limit and, if your business is in one of those fields, then you don't get the deduction.

The vast majority of pass-through businesses that might be classified as service providers -- you're a graphic designer, writer, personal trainer, hair stylist, accountant, or what have you -- will likely come under the top limits and get at least some of the deduction. For those making less than $157,500/$315,000 after all those business expenses, the full 20 percent will be yours.

And if you're LeBron James, then, sorry, but my sympathy does have limits.