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You passed the evaluation, got funded, and now money is hitting your bank account. But how does the IRS see this income? Do you get a 1099? What can you deduct? This guide covers the practical framework US traders need.
Prop firm tax treatment is a gray area — the IRS hasn't issued specific guidance on the funded trader model. Most traders and tax professionals treat it as self-employment or contractor income, but your specific situation may differ.
Some do, some don't. US-based firms paying via bank wire or ACH may send a 1099-NEC or 1099-MISC if your total payouts exceed $600 in a tax year. Firms paying via cryptocurrency or international payment services (Deel, RISE) often do not issue 1099s.
Key point: Whether or not you receive a 1099 does NOT change your tax obligation. All prop firm income must be reported on your US tax return. The IRS can track bank deposits, crypto transactions, and payment service records independently.
Check with each firm's support team about their tax document policies. Some firms provide annual earning summaries even if they don't issue formal 1099s.
Most common treatment. Report income and deduct expenses on Schedule C. Subject to self-employment tax (15.3% for Social Security + Medicare) on top of regular income tax. This allows deducting evaluation fees, resets, platform costs, and data feeds.
Some traders report payouts as "other income" on Schedule 1, Line 8. This may avoid self-employment tax but limits your ability to deduct business expenses. The trade-off depends on your total income and expense levels.
If you receive payouts in BTC or USDT: report the fair market value (in USD) on the day you receive it as income. If you hold the crypto and later sell for more, that's a separate capital gains event. If the crypto loses value before you sell, you may be able to claim a capital loss. Compare payout methods.
If you report on Schedule C, these may be deductible as business expenses:
Use the Profit Tracker to log all expenses alongside payouts. Track every dollar — it adds up significantly at tax time.
It depends on the firm and payment method. US firms paying via bank wire/ACH may send 1099s. Crypto or international payment firms often don't. Report all income regardless.
Most commonly as self-employment income (Schedule C) or other income (Schedule 1). The exact classification depends on your arrangement. Consult a tax professional.
If you report as self-employment, evaluation fees, resets, platforms, and data feeds are potentially deductible as business expenses.
Report fair market value in USD on the day received. If you hold and sell later at a different price, that creates a separate capital gains/loss event.