Complete Guide to South Carolina LLC Taxes in 2025
South Carolina offers a cost-effective environment for LLC owners with no annual report fee, no entity-level tax, and income tax rates that are gradually declining. While the current top rate of 6.5% is higher than some neighboring states, the zero-cost annual compliance and favorable business climate make the Palmetto State an attractive option.
How South Carolina Taxes LLCs
SC treats LLCs as pass-through entities. Profits pass through to members who report on Form SC1040. Multi-member LLCs file Form SC1065 as an information return. SC does not impose any franchise tax or entity-level tax on pass-through LLCs.
Key Point: South Carolina charges no fee for annual report filing -- one of the very few states where ongoing LLC compliance is completely free beyond tax return preparation.
South Carolina Income Tax Brackets (2025)
| Taxable Income | Tax Rate |
|---|---|
| $0 - $3,460 | 0% |
| $3,461 - $6,920 | 3% |
| $6,921 - $10,380 | 4% |
| $10,381 - $13,840 | 5% |
| $13,841 - $17,330 | 6% |
| Over $17,330 | 6.5% |
The top rate of 6.5% is phasing down under recent tax reform. Future reductions are expected as revenue triggers are met.
Federal Taxes for SC LLC Owners
- Self-Employment Tax (15.3%): Standard federal rates
- Federal Income Tax: 10% to 37% for 2025
- QBI Deduction: Up to 20% under Section 199A
Tax Tip: With SC's top rate at 6.5%, S-Corp election and PTET can both provide meaningful savings. Use our S-Corp Tax Calculator to compare structures.
SC LLC Filing Deadlines
| Filing Type | Deadline | Extension |
|---|---|---|
| Individual (SC1040) | April 15 | October 15 |
| Partnership (SC1065) | March 15 | September 15 |
| Estimated Payments | Apr 15, Jun 15, Sep 15, Jan 15 | None |
SC LLC Formation Costs
- Articles of Organization: $110
- Registered Agent: Required
- Annual Report: $0 (no fee)
- EIN: Free from the IRS
SC vs. Neighboring States
| State | Income Tax | Annual Fee | Entity Tax |
|---|---|---|---|
| South Carolina | 0-6.5% | $0 | None |
| North Carolina | 4.5% flat | $200 | None |
| Georgia | 5.49% flat | $50 | None |
| Tennessee | 0% income | $300 min | Franchise + excise |
Common SC LLC Tax Mistakes
- Assuming $0 annual report means no filing: You still must file the report, just no fee
- Ignoring the top rate: 6.5% is high; plan deductions and S-Corp election carefully
- Missing estimated payments: SC penalizes underpayment
- Not tracking rate phase-downs: Plan multi-year decisions around decreasing rates
South Carolina's Evolving Tax Landscape
South Carolina has been on a path of gradual tax reform, reducing its top individual income tax rate from 7% toward more competitive levels. The current 6.5% top rate for 2025 represents a meaningful reduction, and further cuts are expected as revenue triggers are met under the Tax Cuts Act. This trajectory is important for LLC owners making long-term business location decisions.
The state's approach to LLC taxation is remarkably simple: pass-through treatment with no entity-level tax and no annual report fee. This simplicity is a significant advantage for small business owners who want to minimize compliance costs and focus on running their businesses rather than navigating complex tax regulations.
South Carolina's cost of living and business costs are also generally lower than neighboring states, particularly North Carolina's major metropolitan areas (Charlotte, Raleigh). This combination of reasonable tax rates, minimal compliance requirements, and low operating costs makes SC attractive for LLC owners in many industries.
South Carolina LLC Registration and Compliance
Maintaining an LLC in South Carolina requires attention to several ongoing obligations:
- Annual Report: Must be filed with the Secretary of State each year. The report itself costs $0 -- no filing fee -- but failure to file can result in administrative dissolution. File online through the SC Secretary of State's website.
- Registered Agent: Must maintain a registered agent with a physical South Carolina address. This can be a member, employee, or commercial registered agent service ($50-$150/year).
- SC Department of Revenue Registration: Register for state tax withholding, sales tax (if applicable), and other applicable tax types before conducting business.
- Business License: Most SC municipalities require a separate business license, often based on gross receipts. Check with your local municipality for requirements and fees.
The $0 annual report fee is a standout benefit. In most states, annual report fees range from $50 to $500+. South Carolina's approach of requiring the report for accountability but not charging a fee makes ongoing compliance essentially free from the state's perspective.
South Carolina Sales Tax for LLC Owners
South Carolina imposes a 6% state sales tax plus local option taxes that can bring the combined rate up to 9% in some areas. The state has a maximum local option tax cap, but rates vary by county. If your LLC sells taxable goods or services, you must register for a retail license, collect sales tax, and file regular returns.
SC offers several notable sales tax exemptions including manufacturing machinery and equipment, agricultural supplies, and prescription medications. There is a partial exemption on food ($0.06 state rate reduced to $0.03 for unprepared food). For technology companies, SC generally taxes pre-written software but exempts custom software and most SaaS products, though the rules are evolving.
South Carolina Business Incentives and Credits
South Carolina offers competitive business incentives that can significantly reduce the effective tax burden for qualifying LLC owners:
- Job Tax Credit: A credit against withholding tax for each new full-time job created, ranging from $1,500 to $25,000 per job depending on the county tier.
- Port Volume Credit: For businesses that increase port cargo volume through SC's ports.
- Research and Development Credit: A credit for qualifying R&D expenditures conducted in South Carolina.
- Textiles Rehabilitation Credit: Credits for rehabilitating abandoned textile mill sites.
- Angel Investor Credit: A 35% credit for investments in qualified SC technology companies.
These incentives are particularly valuable in SC's designated "Tier IV" counties (most economically distressed), where the job tax credit can reach $25,000 per job -- a substantial benefit for LLCs planning to hire employees.
Estate and Succession Planning for SC LLC Owners
South Carolina does not impose an estate tax or inheritance tax, which is an important consideration for LLC owners planning generational wealth transfer. Combined with the LLC structure's inherent flexibility for succession planning, SC offers favorable conditions for passing business interests to heirs or transferring ownership over time.
Key planning strategies for SC LLC owners include using membership interest gifts (up to $18,000 per recipient per year without gift tax consequences), establishing buy-sell agreements funded by life insurance, creating operating agreement provisions for smooth management transitions, and utilizing valuation discounts available for minority or non-controlling membership interests.
South Carolina PTET Election
South Carolina enacted a Pass-Through Entity Tax election allowing eligible LLCs to pay state income tax at the entity level. The PTET rate matches the individual rates (up to 6.5%), and members receive a corresponding credit. Because the entity-level payment is deductible on the federal return, this effectively bypasses the $10,000 federal SALT deduction cap.
For SC LLC owners with income above the standard deduction threshold where the SALT cap becomes a limitation, the PTET election can produce federal tax savings of approximately $1,000-$3,000 for every $50,000 of income above the cap. The election should be discussed with your CPA to evaluate the net benefit for your specific situation.
Remote Work and Nexus Considerations in SC
As remote work becomes more common, LLC owners should understand South Carolina's nexus rules. If your LLC is formed in SC but you have employees or members working in other states, you may create nexus in those states and owe taxes there. Conversely, if you live in SC but your LLC is formed elsewhere, you still owe SC taxes on income earned while working from your SC home.
SC follows the general rule that income is sourced where services are performed. For LLC owners working from home in SC and serving clients in other states, the income is generally taxable in SC (where the work is performed) rather than in the client's state. However, some states take aggressive positions on sourcing rules, so multi-state operations require careful planning.