How to report prop firm payouts on your tax return

Updated October 26, 2026 · For the 2026 tax year

Your 1099-NEC from a prop firm has arrived. Here's where payouts and trading costs go on a federal return, so you know what you're looking at, whether you use software or hand it all to a CPA.

Line numbers below are from the 2025 forms and instructions, the latest the IRS has published. Check them against the 2026 forms when they come out.

The forms at a glance

• Schedule C, Profit or Loss From Business: your payouts and your trading costs.
• Schedule SE, Self-Employment Tax: Social Security and Medicare tax on the profit.
• Schedules 1 and 2 carry those totals to your Form 1040.

1. Payouts go on Schedule C, line 1

Line 1 is gross receipts. Enter the total of every payout from every firm for the year, including firms that didn't send a 1099-NEC. The IRS says line 1 should include the amounts on your 1099-NECs, and if the forms add up to more than what you report, attach a statement explaining the difference. That's one reason to keep your own payout log, with dates and firms.

2. Trading costs go in Part II

Evaluation fees, resets, activation fees, market data and platforms are the costs funded traders commonly deduct. Costs that don't fit one of the named expense lines are listed in Part V, Other Expenses, and the total goes on line 27b. Keep the receipts.

3. Net profit carries in two directions

Line 31 is your net profit: payouts minus expenses. It goes on Schedule 1 (Form 1040), line 3, where it's added to your other income, and on Schedule SE, line 2, where self-employment tax is figured.

4. Self-employment tax on Schedule SE

You owe self-employment tax if your net earnings from self-employment are $400 or more. The tax goes to Schedule 2, line 4. Half of it is deductible: Schedule SE, line 13 goes to Schedule 1, line 15, which lowers your income tax (not the SE tax itself). How payouts are taxed walks through the math.

5. Credit what you already paid

Add up every 2026 estimated payment, including one made by January 15, 2027, and enter the total on your return. Extra withholding from a day job is already in your W-2.

Worth asking your CPA

• Whether you qualify for the qualified business income (QBI) deduction (Forms 8995 and 8995-A).
• Which business activity code to use on Schedule C, line B.
• Whether any part of your situation, like trading futures in your own account, belongs somewhere else. That's reported separately; see the 60/40 guide.
• Your state return, which usually starts from these federal numbers.

Bring the documents on this checklist. A PayoutTax account keeps the payout log, costs and estimated payments in one place all year. Planning information, not tax advice.

Sources

• IRS, Instructions for Schedule C (2025): line 1 and Forms 1099-NEC, the statement when the forms exceed line 1, line B activity codes, line 31 to Schedule 1 line 3 and Schedule SE line 2, the QBI deduction forms
• IRS, Schedule C (Form 1040) (2025): Part II expense lines, line 27b and Part V Other Expenses
• IRS, Schedule SE (Form 1040) (2025): line 12 to Schedule 2 line 4, line 13 to Schedule 1 line 15
• IRS, Instructions for Schedule SE: the $400 net earnings rule

General information, not tax advice. This guide explains common rules for US funded traders; your situation may differ. It isn't a substitute for a licensed CPA or IRS enrolled agent, so review your own numbers with one before you file or pay.