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Taxes with TopStep


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Taxes with TopStep

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TraderMichaelB
Tulsa + Oklahoma/United States
 
 
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Quick question, if I do get funded (looking likely that I will), can I claim my profits as long-term capital gains if it's from a prop firm? Or do I only get that benefit if I'm trading with my own private account?

Thank you!


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 bobwest 
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TraderMichaelB View Post
Quick question, if I do get funded (looking likely that I will), can I claim my profits as long-term capital gains if it's from a prop firm? Or do I only get that benefit if I'm trading with my own private account?

Thank you!

Hi @TraderMichaelB,

This question really should be asked in the TopStep official thread, so I am going to close this thread and direct you to that one for the official answer.

But since it's already been asked and answered before, here's your answer ( ):


bobwest View Post
I'm not @TopstepTrader, who probably will answer as well, but it has been answered, I think a few times (the thread is long and hard to read, so it's no surprise that it wasn't easy to find.)

You as a trader would be an independent contractor, and the funded account is not your account, it's the firm's. You just get to trade it. Since it's not your account, the funds in it aren't yours, and the profit isn't yours either. So "you" didn't make [whatever amount] in actual profit, the firm did. Under the profit split agreement, they will pay you, on request, 80% of the account's profit, which is reported to you as income on the 1099.

...

Another note -- and I am not a tax specialist or an accountant, so you would need to consult your own tax professional -- if the funds were yours, in your personal account, the profits would not be taxed the same way. You can check the 60/40 rule, which makes the tax treatment very different for derivative trades (such as futures) compared to ordinary self-employed income. This is all self-employed income.

I believe this is all accurate, but again, I am not TopstepTrader and don't represent them. If you want to be sure, and if there is no response from them here, I suggest you email your question to their support to get an official response.

Bob.

Basically, it's self-employed income and not eligible for the 60% capital gains/40% ordinary income split. It's just all ordinary income.

Link:



Note that I am not a representative of TopStep nor a tax professional, and I believe this is correct but you should contact your tax professional. And for that matter, TopStep. (I'm sure they will tell you to consult your tax professional, but they can confirm that you are paid as an independent contractor.)

Also, this is how TopStep does it. Other firms may differ.

Now this thread is closed. You can go over and get an official answer from them.

Bob.

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