Need tax advice for prop trading firm income - accountant recommendations?
Hey everyone, I recently started working with a proprietary trading firm and I'm completely lost on how to handle the tax situation. I'm trading with the firm's capital but I get to keep a percentage of the profits. They're saying I'm an independent contractor, not an employee, so I'll be getting a 1099 at the end of the year. I have no idea what deductions I can take, if I need to make quarterly payments, or how this affects my regular W-2 job. Do I need a specialized accountant who understands prop trading? Anyone have experience with this situation? My current tax person only handles basic returns and seemed confused when I mentioned prop trading. I don't want to mess this up and get hit with penalties. Any advice would be super appreciated!
20 comments
Join the conversation
StarStrider
Trading income can definitely complicate your tax situation! Since you're receiving a 1099, you'll report this income on Schedule C as self-employment income. This means you're subject to both income tax and self-employment tax (15.3%) on your net earnings. For quarterly estimated payments, you'll likely need to make these if you expect to owe $1,000+ at tax time. The safe harbor is paying either 90% of current year tax or 100% of prior year tax (110% if your AGI was over $150,000). For deductions, you can typically deduct trading-related expenses like home office (if you have a dedicated space), internet, computer equipment, trading software subscriptions, research materials, education related to trading, and potentially a portion of your phone bill. Keep meticulous records of all expenses!
0 coins
Luca Esposito
•Thanks for the info! Do you know if losses from prop trading can offset gains from my personal stock trading? And what about the fees I pay to the prop firm - are those deductible?
0 coins
StarStrider
•Losses within your prop trading business can offset gains within that same business activity on Schedule C. However, the relationship between your prop trading and personal trading is more complex. Your personal trading is typically reported on Schedule D and is considered capital gains/losses, while your prop trading is business income on Schedule C. They're treated differently for tax purposes. Yes, the fees you pay to the prop firm should be deductible as ordinary business expenses on your Schedule C. This includes platform fees, data fees, and any other direct costs of doing business. Just make sure to keep detailed records and receipts for everything.
0 coins
Nia Thompson
I was in a similar situation last year and found an amazing resource that saved me thousands in taxes. Check out https://taxr.ai - they specialize in analyzing tax documents for traders and finding deductions most accountants miss. I uploaded my statements from my prop firm and they identified several legitimate write-offs my regular accountant didn't catch, plus they explained exactly how to handle the quarterly estimated payments.
0 coins
Mateo Rodriguez
•How does taxr.ai work with prop firm income specifically? My situation is complicated because I'm still working a full-time job while doing the prop trading on the side.
0 coins
Aisha Abdullah
•Sounds interesting but do they actually have CPAs reviewing your stuff or is it all AI? I'm worried about getting audited if I claim too many deductions.
0 coins
Nia Thompson
•They have specialized knowledge about prop trading tax situations and can help identify which expenses qualify as legitimate business deductions. They'll analyze your specific mix of W-2 and 1099 income to optimize your tax situation while staying compliant. Their system is really good at handling multiple income streams. They use AI for the initial document analysis but have tax professionals who review everything. They're very conservative about what deductions they recommend - they'll clearly mark what's definitely deductible versus what might be questionable. They actually helped me avoid some risky deductions my friend was taking!
0 coins
Mateo Rodriguez
Just wanted to follow up about taxr.ai - I decided to try them after posting here. Super impressed with how they handled my prop trading situation! They identified several trader-specific deductions I had no idea about, and explained exactly how my prop income affects my tax brackets with my W-2 job. They even created a customized quarterly payment schedule that accounts for my variable trading income. Definitely worth checking out if you're dealing with prop firm income!
0 coins
Ethan Wilson
If you need to actually talk to someone at the IRS about your prop trading situation (which I did when I first started), use https://claimyr.com - they'll get you connected to an actual IRS agent without the insane hold times. I spent three days trying to get through on my own before I found them. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. I had specific questions about trader tax status vs. just being self-employed that my accountant couldn't answer clearly.
0 coins
NeonNova
•Wait, so this service somehow gets you through to the IRS faster? How does that even work? IRS phone system is basically impossible to navigate.
0 coins
Yuki Tanaka
•Yeah right. Nobody gets through to the IRS. I've literally waited 3+ hours multiple times this year and still got disconnected. If this actually worked, everyone would be using it.
0 coins
Ethan Wilson
•They use technology that navigates the IRS phone system and waits on hold for you. When an agent picks up, you get a call connecting you directly to that agent. It's basically like having someone wait on hold for you, but automated. I was skeptical too, but it's legit. I was having the exact same experience - hours on hold only to get disconnected. The difference is they have systems that can stay on hold indefinitely and know exactly which prompts to select to get to the right department for your specific tax question. Trust me, after struggling with the IRS phone system, it was worth it to actually get answers about how prop trading income is treated.
0 coins
Yuki Tanaka
I owe everyone an apology - especially Profile 9. I tried Claimyr this morning and I'm legitimately shocked. After weeks of trying to get someone at the IRS to answer questions about my prop trading income classification, I got through to a knowledgeable agent in about 35 minutes. They actually got me to someone in the business tax department who understood trading! The agent clarified that my prop firm income doesn't qualify for trader tax status automatically - there are specific criteria I need to meet. Saved me from potentially filing incorrectly.
0 coins
Carmen Diaz
Don't forget about state taxes too! Prop trading income is treated differently in some states than others. In my state, I had to register as a business and file a separate state business return even though federally it just went on my Schedule C. Also check if your city has any local business taxes - mine has a gross receipts tax that applies to independent contractors.
0 coins
Andre Laurent
•Do you need to pay state taxes where the prop firm is located or just where you live? My firm is in Chicago but I live in Texas.
0 coins
Carmen Diaz
•Generally you pay state taxes where you perform the work, which is typically your state of residence if you're trading from home. Since you're in Texas which has no state income tax, you likely don't need to worry about personal income tax at the state level. However, you should check if Texas has any other business taxes that might apply to your trading activity. Some states without income tax have other ways of taxing business activity. Illinois generally wouldn't tax you unless you physically work in Illinois or have some other connection to the state beyond just contracting with a company based there.
0 coins
Emily Jackson
Has anyone used TurboTax Self-Employed for their prop trading taxes? I'm trying to decide if I should use that or hire an accountant.
0 coins
Liam Mendez
•I tried TurboTax last year for my prop trading and regretted it. Ended up hiring an accountant to amend my return. There were too many nuances with trading expenses and the home office deduction that TurboTax didn't explain well. If your situation is complex, I'd recommend getting a professional.
0 coins
Freya Thomsen
I went through this exact situation last year when I started prop trading! A few key things I learned the hard way: 1. You'll definitely want to find a CPA who understands trading - it's worth the extra cost. Regular tax preparers often don't grasp the nuances of trader expenses and quarterly payments. 2. Start tracking EVERYTHING now - trading software subscriptions, home office space, computer equipment, even books and courses related to trading. The deductions can really add up. 3. For quarterly payments, I use the safe harbor rule (paying 100% of last year's tax liability divided by 4). It's simpler than trying to estimate variable trading income. 4. One thing that caught me off guard - you might need to pay both sides of Social Security/Medicare tax (15.3% total) on your net prop trading profits since you're self-employed. 5. Consider opening a separate business checking account for all your trading-related expenses. Makes record keeping much cleaner come tax time. The learning curve is steep but manageable once you get the systems in place. Don't stress too much - just start documenting everything and find that specialized accountant!
0 coins
Anastasia Popov
•This is super helpful! I'm just starting out with prop trading and had no idea about the self-employment tax implications. Quick question - when you say "both sides of Social Security/Medicare tax," does that mean I'm paying more than I would as a regular employee? And do you have any recommendations for tracking software that works well for trading expenses?
0 coins