Question 1

What does TraderTax do?

Accepted Answer

TraderTax specializes in tax preparation and planning for active traders — prop firm traders, futures traders, options traders, and crypto traders. We connect traders with licensed CPAs who understand prop firm 1099-NEC payouts, Section 475(f) elections, Section 1256 contracts, and the wash-sale rule under IRS Pub 550.

Question 2

How much does TraderTax cost?

Accepted Answer

Tax filing starts at $597/year (File It) for trader return prep with TTS analysis and wash-sale review. Profitable traders typically choose Optimize It at $1,197/year. Full entity strategy and MTM election filing is $2,497/year (Strategize It). A federal extension is $97. All tiers include free consultation.

Question 3

Do you help with prop firm taxes?

Accepted Answer

Yes — prop firm taxation is our core specialty. We work with traders on Apex Trader Funding, TopStep, FTMO, Tradeify, Take Profit, MyFundedFutures, and all major funded account programs. Prop firm payouts are reported on a 1099-NEC and require Schedule C treatment with self-employment tax — we handle the structuring, deductions, and entity setup.

Question 4

What is Trader Tax Status (TTS)?

Accepted Answer

Trader Tax Status is an IRS designation under §475 that lets active traders deduct trading-related business expenses (home office, education, equipment, software, data feeds) on Schedule C, and optionally elect mark-to-market accounting to convert capital gains/losses to ordinary income — bypassing the $3,000 capital loss limit. Qualification requires substantial, frequent, and continuous trading activity.

Question 5

What is the mark-to-market (MTM) election?

Accepted Answer

The §475(f) mark-to-market election lets traders treat all open positions as if sold at year-end fair market value. Two big benefits: (1) full ordinary loss treatment with no $3,000 cap, and (2) wash-sale rule no longer applies. The election must be filed by April 15 of the year you want it to apply (e.g., file by April 15, 2026 for tax year 2026). Once elected, it's binding without IRS permission to revoke.

Question 6

How are Section 1256 contracts taxed?

Accepted Answer

Section 1256 contracts (futures, broad-based index options like SPX/NDX/RUT, and certain forex) get 60/40 treatment: 60% long-term capital gains, 40% short-term, regardless of holding period. They're reported on Form 6781 (not Form 8949) and marked-to-market at year-end automatically. This is one of the most favorable tax treatments in the U.S. tax code.

Question 7

What is the wash-sale rule for traders?

Accepted Answer

Under IRS Pub 550, if you sell a security at a loss and buy a substantially identical security within 30 days before or after, the loss is disallowed and added to the basis of the replacement shares. Wash sales do NOT apply to Section 1256 contracts (futures, broad-based index options) or, per current IRS guidance, to crypto. Traders with MTM election are also exempt.

Question 8

Do prop firm payouts count as self-employment income?

Accepted Answer

Yes. Prop firm payouts arrive on a 1099-NEC, which is treated as self-employment income on Schedule C. This means you owe self-employment tax (15.3%) plus federal/state income tax — but you can deduct trading-related business expenses, fund retirement accounts (Solo 401k, SEP-IRA), and potentially benefit from S-Corp election to reduce SE tax exposure.

Question 9

What is the Tax Snapshot tool?

Accepted Answer

The Tax Snapshot is a free 2-minute questionnaire. Answer 10 questions about your trading and you get a personalized AI-generated summary of your tax exposure, missed deductions, and recommended service tier — reviewed and contacted by a real CPA within hours.

Question 10

Can you help traders who lost money?

Accepted Answer

Absolutely. Unprofitable traders often need a CPA more than profitable ones. Properly filed trading losses can offset W-2 income (up to $3,000/year for non-TTS traders, unlimited for TTS+MTM traders), create carryforwards for future years, and set you up for maximum savings when you become profitable.

Question 11

Do you handle offshore brokerages and FBAR?

Accepted Answer

Yes. Traders with offshore prop firms (Bybit, Binance, Weex) or foreign brokerage accounts are required to file FinCEN Form 114 (FBAR) if aggregate balances exceed $10,000 at any point in the year, plus Form 8938 (FATCA) at higher thresholds. Penalties for non-disclosure can exceed $10,000 per account. Offshore situations are handled exclusively through our Strategize It tier.

Question 12

Do I need to form an LLC or S-Corp as a trader?

Accepted Answer

Not always — and entity formation alone doesn't unlock trader tax status. An LLC can simplify bookkeeping and give legal liability separation. An S-Corp is more complex but can reduce SE tax once profits exceed roughly $50K-$80K/year (especially for prop firm traders on 1099-NEC). The right answer depends on your income level, trading activity, and state. We model it as part of Strategize It.

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