The correct way to annotate a "file type" in Python

You can use typing.IO, typing.TextIO, and typing.BinaryIO to represent different types of I/O streams. To quote the documentation:

сlass typing.IO
class typing.TextIO
class typing.BinaryIO

Generic type IO[AnyStr] and its subclasses TextIO(IO[str]) and BinaryIO(IO[bytes]) represent the types of I/O streams such as returned by open().

I think you want io.IOBase, "[t]he abstract base class for all I/O classes, acting on streams of bytes."

Note that this includes also in-memory streams like io.StringIO and io.BytesIO. Read the documentation on the module io for details.

Either this:

from typing import TextIO # or IO or BinaryIO

def myfunction(file: TextIO ):
    pass

OR this

from typing import TYPE_CHECKING
if TYPE_CHECKING:
    from typing import TextIO # or IO or BinaryIO

def myfunction(file: 'TextIO'):
    pass

The second approach would avoid to import the class during execution. Although python would still have to import TYPE_CHECKING during execution, it is a good practice to avoid importing classes for type hinting only: (1) doesn't get executed (just parsed), and (2) it could avoid cyclic imports.