I-335: Active Trade or Business Income Reduced Rate Computation (2024)
South Carolina · South Carolina DOR · Used for tax years 2024
South Carolina Form I-335 calculates the 2024 tax on qualifying active trade or business income at the reduced rate of 3%. It reports eligible income, adjustments, and amounts taxed at the entity level, and is attached with supporting worksheets to Form SC1040 or SC1041.
Who files this form
Use I-335 if you are an individual, estate, or trust choosing the reduced tax rate on eligible active trade or business income from pass-through businesses. These include sole proprietorships, partnerships, S corporations, and LLCs taxed as one of those business types.
This is an annual choice, not a requirement for everyone with business income. Complete one I-335 per return. For a joint return, the choice applies to both spouses.
For tax year 2024, the instructions say not to complete I-335 if your South Carolina taxable income is $17,330 or less because you cannot benefit from the 3% rate. They also state that this limitation does not apply to partnership partners, S corporation shareholders, or LLC members who would otherwise pay a flat 6.2% tax.
What you'll need
Have the following available, as applicable:
- Your name and Social Security number, plus your spouse's information for a joint return. Individual taxpayers must provide their Social Security number.
- Your SC1040 or SC1041 return.
- Federal Schedules C, C-EZ, and F for sole proprietorship income.
- Your federal Form 1040 for the deductible portion of self-employment tax.
- Federal K-1s and SC K-1s for partnership, S corporation, or applicable LLC income.
- Information about adjustments for basis limits, at-risk rules, South Carolina net operating losses, or passive activity losses.
Complete one Worksheet 1 for all applicable Schedules C, C-EZ, and F. Complete a separate Worksheet 2 for each SC K-1.
If you report income from a composite return on your individual return and claim credit for tax paid on your behalf, attach the 1099-MISC marked for South Carolina purposes only that you received from the pass-through business.
How to file
Attach one completed I-335 and all supporting worksheets to your SC1040 or SC1041.
- Transfer the worksheet totals to I-335 and complete the applicable adjustments and personal-services calculation.
- If line 5 is greater than zero, enter it on SC1040, line I; Schedule NR, line 39; or SC1041, Part I, line 2d, as applicable.
- Subtract income taxed at the entity level on line 6 before calculating the tax.
- Enter the tax from I-335, line 9, on SC1040, line 8, or SC1041, line 9.
The supplied text does not give a mailing address or e-filing instructions.
Common mistakes
- Counting the same self-employment tax deduction twice. Do not include on I-335, line 2b, an amount already included on Worksheet 1, line 2.
- Including excluded income. Do not put capital gains or losses, passive investment income or losses, or guaranteed payments for services in Worksheet 2, Column C.
- Overstating Column C. Do not enter an amount greater than the total South Carolina income or loss shown in Column B.
- Including wages in the personal-services adjustment. Do not include W-2 amounts or guaranteed payments for personal services on I-335, line 4.
- Ignoring stop instructions. Stop if I-335, line 3, line 5, or line 7 is zero or negative.
- Forgetting the Safe Harbor checkbox. Check the box on line 4 if you elect to use the Safe Harbor.
Questions people ask
What is the reduced rate for 2024?
The rate is 3% on qualifying active trade or business income. Multiply I-335, line 7, by 3% to calculate the tax on line 9.
Can I change my choice each year?
Yes. You can decide annually whether to use the reduced rate or the standard graduated rates. On a joint return, the choice applies to both spouses.
Who can use the Safe Harbor?
The Safe Harbor is available when your total South Carolina taxable income from pass-through entities for which you perform personal services is $100,000 or less, excluding capital gains and losses. For married couples filing jointly, eligibility is based on combined income. If you qualify and choose it, you may treat 50% of qualifying income as not reasonably related to personal services instead of determining the actual personal-service amount.
What if the business already paid tax on the income?
Enter active trade or business income taxed at the entity level on I-335, line 6. Find this amount on SC1065 K-1, line 14, or SC1120S K-1, line 13. Subtract line 6 from line 5. If the result is zero or negative, stop.