By Yigang Xu, CPA
XU CPA, LLC
Greenville, SC
www.mygreenvillecpa.com
What is South Carolina Form I-335?
South Carolina Active Business and Trade Income is not very well understood by many self-employed people with good income level. The name sounds quite confusing as if it is an extra tax, but it is actually a huge tax saving for self-employed professionals (lawyers, real estate professionals, financial professional and etc.,)
This Form I-335 in essence is a re-computation of income tax liability at a reduced flat rate, 3.67% to be exact for tax year 2013. As many of us know, our State’s personal income tax rate top at 7% for income higher than $14,250. If you have $100,000 of active business or trade income, by completing Form I-335, you achieved a tax saving of $2,855.
Personal Service:
For purpose of tax calculation, portion of the active business or trade income that is personal service needs to be subtracted from the gross amount. For example, if among your active business income $100,000, $50,000 is your reasonable compensation, then only $50,000 ($100,000 – $50,000) will enjoy the reduced flat rate at 3.67%. Because 2013 rate is even lower compared to 2012, please exercise caution in determining your personal service amount. Tax code allows a safe harbor of 50% personal service if your gross active business income is less than $100,000.
Summary:
South Carolina offers a reduced flat tax rate at 3.67% for self-employed persons with active business trade income. Instead of the top 7% rate, taxpayer can enjoy a lower 3.67% rate by filing form I-335. If you need any assistance or consultation in the preparation of the form, or determining personal service amount. Please feel free to contact me.
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