Prop Firm Taxes Explained: What Traders Actually Need to Know
Prop firm payouts are taxable income. Doesn’t matter if they come through Deel, crypto, wire, or PayPal — if you earn money from a prop firm, the IRS expects you to report it. This page cuts the nonsense and explains exactly what traders need to track.
How Prop Firm Payouts Are Treated by the IRS
Prop firm payouts are usually classified as one of two things:
- Self-employment income — the most common classification
- Miscellaneous 1099 income — depending on the payout partner
These payouts are NOT treated like capital gains because you aren’t trading your own money. You’re performing a service and getting paid for results.
Payout Platforms and How They Report Income
The payout processor determines whether you get a formal tax form.
| Payout Method | Reporting Behavior |
|---|---|
| Deel | Usually issues 1099-NEC if thresholds are met |
| Crypto | No 1099, but still fully taxable |
| PayPal | May issue 1099-K depending on volume |
| Bank wire | No automatic form — trader must report manually |
If you want to see how payouts flow mechanically, read how firms handle payout processing methods.
What Traders Must Track Themselves
Prop firms don’t track your expenses. That’s on you.
- Payout amounts
- Evaluation costs
- Platform fees
- Data fees
- Trading tools and software
- Home office deductions (if applicable)
The IRS only cares about the net number you claim — not what your prop firm dashboard says.
Crypto Payouts Aren’t a Loophole
Some traders think crypto payouts avoid taxes. Wrong. Crypto payouts create two taxable events:
- Ordinary income at the value received
- Capital gains/losses when you later sell or swap it
How KYC and Reporting Tie Together
Prop firms collect KYC to comply with financial regulations. That same KYC is why payouts are traceable.
Prop Firm Payouts Aren’t Invisible—They're Taxable
If you got paid, it’s income. Period. Prop firm or not, the IRS expects their cut. Skip the tracking, and you’re setting yourself up for a mess. Keep records, save confirmations, and treat it like a business—because that’s exactly how they’ll treat you.