I-335: Active Trade or Business Income Reduced Rate Computation (2025)
South Carolina · South Carolina DOR · Used for tax years 2025
South Carolina Form I-335 calculates the 3% tax on qualifying active trade or business income for 2025. It reports income from supporting worksheets, adjustments, and amounts taxed at the entity level to determine the tax reported on SC1040 or SC1041.
Who files this form
Use I-335 if you are an individual, estate, or trust choosing to have eligible active trade or business income from pass-through businesses taxed at the optional 3% rate. This is an annual choice, not a requirement for everyone with business income.
Pass-through businesses include sole proprietorships, partnerships, S corporations, and LLCs taxed as one of these business types. Complete one I-335 per return. For a joint return, the choice applies to both spouses.
For tax year 2025, the instructions say not to complete I-335 if your South Carolina taxable income is $17,830 or less because you cannot benefit from the 3% rate. They state an exception for partnership partners, S corporation shareholders, or LLC members who would otherwise pay a flat 6% tax.
What you'll need
Use the documents that apply to your income:
- SC1040 or SC1041: Attach I-335 and all supporting worksheets to your return.
- Federal Schedules C, C-EZ, and F: Use these to complete one Worksheet 1 for all applicable sole proprietorship or single-member LLC income.
- Federal Form 1040: Use the deductible self-employment tax amounts that apply to your South Carolina business income.
- Federal and South Carolina K-1s: Complete a separate Worksheet 2 for each SC K-1 from a partnership, S corporation, or LLC taxed as either.
- SC K-1 entity-level tax information: Income taxed at the entity level is reported on SC1065 K-1, line 14, or SC1120S K-1, line 13.
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.
Individual taxpayers must provide their Social Security number on this form.
How to file
Complete one I-335 for your return and attach it, along with all supporting worksheets, to SC1040 or SC1041.
- Complete one Worksheet 1 for all applicable federal Schedules C, C-EZ, and F.
- Complete a separate Worksheet 2 for each SC K-1.
- If I-335, line 5 is greater than zero, enter it on SC1040, line I; Schedule NR, line 39; or SC1041, Part I, line 2d, as applicable.
- Enter the tax calculated on I-335, line 9 on SC1040, line 8, or SC1041, line 9.
The supplied text does not give a mailing address or e-filing directions.
Common mistakes
- Counting excluded income as active business income: Do not include capital gains or losses, passive investment income or related expenses, or guaranteed payments for personal services.
- Deducting self-employment tax twice: Do not include on I-335, line 2b an amount already included on Worksheet 1, line 2.
- Including wages on the personal-services line: Do not include W-2 amounts or guaranteed payments for personal services on I-335, line 4.
- Overstating Worksheet 2, Column C: Include qualifying income taxed at the entity level, but do not enter more than the total South Carolina income or loss shown in Column B.
- Continuing after a stop instruction: Stop if I-335, line 3, line 5, or line 7 is zero or negative.
- Forgetting the Safe Harbor election box: Check the box on line 4 if you choose to use Safe Harbor.
Questions people ask
What is the reduced rate for tax year 2025?
The rate is 3% on qualifying active trade or business income. You can decide each year whether to use this rate instead of the standard graduated rates.
Can spouses make separate choices on a joint return?
No. On a joint return, the reduced-rate election applies to both spouses. A decision to use Safe Harbor also applies to both spouses.
Who can qualify for Safe Harbor?
Your total South Carolina taxable income from pass-through entities for which you perform personal services must be $100,000 or less, excluding capital gains and losses. Married couples filing jointly use their combined income to determine eligibility. If you qualify and elect Safe Harbor, 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?
Include qualifying income taxed at the entity level in Worksheet 2, Column C. Then enter the amount taxed at the entity level on I-335, line 6 and subtract it from line 5. If line 7 is zero or negative, stop. You have no active trade or business income to tax at the flat rate on SC1040 or SC1041.
Can tax credits reduce the optional flat tax?
Yes. Tax credits that can be used against the graduated Income Tax normally imposed on individuals, trusts, and estates can also be used against the optional flat tax on active trade or business income.