In South Carolina (where I live), you have the option to use an optional income tax rate to compute the state tax on your active trade or business income. An individual, estate or trust receiving income from one or more pass-through businesses can choose to have the active trade or business income taxed at a flat income rate (5%) instead of the graduated income tax rate (as high as 7%) that applies to ordinary income. Here is a link to SC I-335, which contains the form for ACTIVE TRADE OR BUSINESS INCOME REDUCED RATE COMPUTATION and relevant instructions: http://www.sctax.org/NR/rdonlyres/B7ED069B-D393-4C98-825A-7BC7FCA678CC/0/I335.pdf As I understand the restrictions, you cannot take advantage of the optional tax rate if your income is related to a service business unless you quality for the SAFE HARBOR (I don’t). I want to make sure that I qualify to take advantage of the optional tax rate, as it will reduce my tax burden. I am a self-employed, sole proprietor. I take photographs and sell them (along with picture frames to put the pictures in) to stores across the country (i.e., gift shops, art galleries, etc.) on a wholesale basis. I am NOT a photographer for hire. In other words, you cannot hire me to take pictures of your kids, your wedding, your pets, etc. I only take pictures I choose to take, print them in large quantities and wholesale them to stores, who then resell them to their customers. We mainly get our customers by going to trade shows and wholesaling our products to the retailers who attend the trade shows. All of our income comes from wholesaling photographs and frames. We don't have a studio or meet with clients. Here are my questions: 1. Would my business be considered a service business? 2. The business description I have been using on my Schedule C for my business is WHOLESALE PHOTOGRAPHY AND FRAMING. Should I change this? I don’t want to use a business description that sounds like it is a service business if it is not, especially if I am going to be able to take advantage of the optional tax rate. In other words, is there a more appropriate description that I should be using?

In 2009, we purchased a small piece of vacant land using an LLC (my wife is the sole member of the LLC). Here are the details: 1. We paid cash for the land. 2. The land is still vacant; we haven't done anything to develop the lot. 3. We haven't made any income from the land. 4. We have had minimal expenses for the land (i.e., property taxes, HOA fees, storm water utility fees). I didn't know until yesterday that we were supposed to be filing a Schedule C for the LLC. I am currently finishing our 2010 tax return. Here are my questions: 1. When filing out the Schedule C, what do we put for "Business Description?" 2. What do we put for "Business Code?" 3. Did we "actively participate in the business?" 4. Do we put the expenses (i.e., property taxes, HOA fees, storm water utility fees) under "Taxes and licenses?" 5. How do we handle depreciation (if at all)? 6. Should we go back and file an amended return for 2009 even though the amount of savings for the expenses will be minimal?

Doing S Corp tax Return.

Client paid himself using commissions expense to record his wages?

I know he needs to use a w-2 or distributions from undistributed earnings to pay himself.

Any ideas on what to tell him now?

I'm at a loss to complete the return.