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Category: South Carolina

South Carolina Tax on Active Trade/Business Income

General purpose: An individual, estate or trust receiving income from one or more pass-through businesses can choose to have active trade or business income taxed at a flat income tax rate instead of the graduated income tax rate that applies to ordinary income. I-335 identifies active trade or business income and calculates the tax.

Important: For tax year 2013, except for partners, S corporation shareholders, or LLC members who would otherwise pay a flat 7% tax, a taxpayer with South Carolina taxable income less than or equal to $5,700 cannot benefit from the flat 3.67% rate for active trade or business income because the highest graduated tax rate for income less than or equal to $5,700 is 3%. Do not complete I-335 if your South Carolina taxable income is less than or equal to $5,700.

Purpose of I-335: I-335 identifies active trade or business income and calculates the optional flat tax rate imposed on active trade or business income. In order to use the flat tax rate on active trade or business income, an individual, estate or trust with pass-through income from one or more sole proprietorships or single-member LLCs not taxed as a C corporation must complete one Worksheet 1.

In order to use the flat tax rate on active trade or business income, an individual, estate or trust with pass-through income from one or more partnerships, S corporations, or LLCs taxed as partnerships or S corporations must complete a separate Worksheet 2 for each business.

Worksheets 1 and 2 identify pass-through income and remove passive investment income and expenses related to passive investment, capital gains and losses, and guaranteed payments for personal services. From the results of Worksheets 1 and 2, I-335 identifies active trade or business income or loss and calculates the optional flat rate of tax.

For complete instructions on the SC I-335 click here