According to South Carolina's Instructions for Form SC I-335:
Individuals, estates or trusts that generate income from one or more pass-through businesses can elect to have that income taxed at a flat rate rather then the graded approach that Ordinary Income is taxed at. Complete Form I-335 to determine the active trade or business income and figure the tax. This election can be made yearly by each taxpayer listed on the return.
Is there a minimum taxable income amount required?
Per the I-335 instructions "For tax year 2022, a taxpayer with South Carolina taxable income less than or equal to $16,040 cannot benefit from the 3% rate for active trade or business income because the highest graduated tax rate for income less than or equal to $16,040 is 3%. This does not apply to Partnership partners, S Corporation shareholders, or LLC members who would otherwise pay a flat 6.5% tax. Do not complete the I-335 if your South Carolina taxable income is less than or equal to $16,040. "
What forms do I need to complete?
The I-335 Form determines the active trade or business income and figures the optional flat tax rate established on active trade or business income. If you choose 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 proprietorship or single-member LLCs not taxed as a C corporation must fill out one Worksheet 1.
If you choose 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 fill out an individual 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 payments for personal services. From the results of Worksheets 1 and 2, I-335 identifies active trade or business income or loss and figures the alternative flat tax amount.
Where do I enter this in my account?
To enter this into your account, go to:
- State Section
- Subtractions from Income
- Form SC I-335 Active Trade or Business Income Deduction
If you completed South Carolina Form I-335 in the subtraction from income section within your account, the tax calculated on Line 7, if any, will automatically carry to your tax return.
For complete instructions on the SC I-335: click here.