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Taxes on TakeProfitTrader Withdrawals
TakeProfitTrader withdrawals are taxed as self-employment income, not capital gains, meaning you pay both federal income tax (10-37% depending on your bracket) and self-employment tax (15.3% for Social Security and Medicare) on your net trading profits.
Every dollar you withdraw from PRO accounts increases your taxable income for the year, reported on Form 1099-NEC if you exceed $600 in annual withdrawals.
The effective tax rate for most traders ranges from 25-40% when combining federal, self-employment, and state taxes, but this can be reduced to 15-25% through aggressive business expense deductions including Test subscriptions, platform fees, software costs, and home office allocation. Understanding your tax obligations before withdrawing helps you set aside the correct amount (typically 30-35% of gross profits) to avoid surprise tax bills and underpayment penalties.
Quick heads-up: This article is based on my real experience with TakeProfitTrader and the info available when I published/updated this. Things change in prop trading — rules, payouts, promos, all of it.
For the absolute latest, check TakeProfitTrader´s website or their knowledge base.
Why TPT Withdrawals Are Self-Employment Income (Not Capital Gains)
Common misconception: "I'm trading futures, so my profits are capital gains taxed at lower rates."
Reality: When you trade through a prop firm like TakeProfitTrader, you're not trading with your own capital. You're providing services (trading) in exchange for a share of profits. The IRS classifies this as self-employment income.
The legal structure:
You → Independent contractor → TakeProfitTrader → Splits profits with you
Tax classification: 1099-NEC (Nonemployee Compensation), not 1099-B (Broker proceeds)
Why this matters:
Capital gains tax: 0-20% (depending on holding period and income)
Self-employment tax alone: 15.3%
Self-employment income: Income tax (10-37%) + SE tax (15.3%) = 25.3-52.3% total
Can you elect mark-to-market (MTM) accounting to get trader tax status?
MTM is possible if you trade your own capital 4+ days/week as your primary activity. But for prop firms, you're still receiving 1099-NEC income regardless of MTM election. MTM mainly helps if you're also trading personal accounts.
Bottom line: Plan on paying income tax + self-employment tax on TPT withdrawals. There's no way around it.
The Three Tax Components on TPT Withdrawals
Every dollar you withdraw faces three potential taxes:
1. Federal Income Tax
How it works:
Your net profit (withdrawals minus expenses) is added to your other income and taxed according to federal brackets.
2024-2026 Tax Brackets (Single Filers):
Example:
You made $20,000 net profit from TPT. You have no other income.
- First $11,600 taxed at 10% = $1,160
- Remaining $8,400 taxed at 12% = $1,008
- Total income tax: $2,168 (10.8% effective rate)
Example 2:
You made $80,000 from TPT + $50,000 W-2 income = $130,000 total.
- You're in the 22-24% brackets
- Your marginal rate on TPT income: 24%
2. Self-Employment Tax (Social Security + Medicare)
How it works:
15.3% flat tax on net self-employment income (up to Social Security wage base of $168,600 in 2026).
Breakdown:
- Social Security: 12.4% (capped at $168,600)
- Medicare: 2.9% (no cap)
- Additional Medicare: 0.9% (on income over $200K single / $250K married)
Calculation:
Net profit from TPT × 92.35% = Self-employment income subject to SE tax
SE income × 15.3% = Self-employment tax owed
Example:
$20,000 net profit from TPT
$20,000 × 0.9235 = $18,470
$18,470 × 0.153 = $2,826 SE tax
Deduction: You can deduct half of SE tax ($1,413) on your 1040, reducing your taxable income.
The good news: Once your W-2 wages + SE income exceed $168,600, you no longer pay Social Security tax (12.4%) on additional income. You only pay Medicare (2.9%).
3. State Income Tax (Varies by State)
State tax rates (examples):
- California: 1-13.3% (progressive)
- New York: 4-10.9%
- Texas: 0% (no state income tax)
- Florida: 0%
- Oregon: 4.75-9.9%
- Illinois: 4.95% flat
Example:
$20,000 TPT net profit in California (assuming 9.3% bracket):
$20,000 × 0.093 = $1,860 state tax
Total Tax Burden: Real-World Examples
Example 1: Part-Time Trader (Low Income)
Scenario:
- TPT withdrawals: $15,000
- Expenses: $3,000 (Test fees, software)
- Net profit: $12,000
- Other income: $0
- State: Texas (0% state tax)
Federal income tax:
- $11,600 × 10% = $1,160
- $400 × 12% = $48
- Total: $1,208
Self-employment tax:
- $12,000 × 0.9235 × 0.153 = $1,695
Total tax: $1,208 + $1,695 = $2,903
Effective rate: 24.2% (on $12K net profit)
Amount to set aside: $2,903 ÷ $12,000 = 24% of net profits
Example 2: Full-Time Trader (Medium Income)
Scenario:
- TPT withdrawals: $60,000
- Expenses: $8,000 (multiple Tests, PRO resets, software, home office)
- Net profit: $52,000
- Other income: $0
- State: Florida (0% state tax)
Federal income tax:
- $11,600 × 10% = $1,160
- $35,550 × 12% = $4,266
- $4,850 × 22% = $1,067
- Total: $6,493
Self-employment tax:
- $52,000 × 0.9235 × 0.153 = $7,343
- Deduction for half: $3,672
Adjusted taxable income: $52,000 - $3,672 = $48,328
Recalculate federal tax on $48,328 (slight reduction)
Total tax: ~$12,500
Effective rate: 24% (on $52K net profit)
Amount to set aside: 25-30% of net profits
Example 3: High-Volume Trader (High Income)
Scenario:
- TPT withdrawals: $150,000
- Expenses: $15,000 (5 PRO accounts, software, equipment)
- Net profit: $135,000
- Other income: $0
- State: California (9.3% bracket)
Federal income tax:
- Progressive rates through $100,525 = $17,168
- Remaining $34,475 at 24% = $8,274
- Total: $25,442
Self-employment tax:
- $135,000 × 0.9235 × 0.153 = $19,065
- Deduction for half: $9,533
State tax:
- $135,000 × 0.093 = $12,555
Total tax: $25,442 + $19,065 + $12,555 = $57,062
Effective rate: 42.3% (on $135K net profit)
Amount to set aside: 40-45% of net profits
How to Calculate Your Personal Tax Obligation
Step-by-step formula:
Step 1: Calculate net profit
TPT withdrawals - Business expenses = Net profit
Step 2: Calculate SE tax
Net profit × 0.9235 × 0.153 = SE tax
SE tax ÷ 2 = Deductible portion
Step 3: Calculate adjusted net profit
Net profit - Deductible SE tax = Adjusted net profit
Step 4: Add other income
Adjusted net profit + W-2 income + Other income = Total taxable income
Step 5: Calculate federal income tax using brackets
Step 6: Add state tax (if applicable)
Step 7: Add SE tax
Total tax owed = Federal + SE + State
Safe withdrawal rule: Set aside 30-35% of every TPT withdrawal for taxes.
If you withdraw $1,000, immediately move $300-350 to a separate "tax savings" account.
Reducing Your Tax Burden: Deductible Expenses
Every dollar in deductible expenses saves you ~25-45 cents in taxes (depending on your bracket + SE tax rate).
Maximum deductions strategy:
Impact on taxes:
Without deductions: $30,000 gross profit = $7,500 in taxes (25%)
With $5,940 in deductions: $24,060 net profit = $6,015 in taxes (20% of gross)
You saved $1,485 in taxes by properly tracking and deducting expenses.
Quarterly Estimated Tax Payments
The rule: If you expect to owe $1,000+ in taxes after withholding, you must make quarterly estimated payments.
Why it matters: Underpayment penalties can be 3-8% annual interest on the amount you should've paid.
How to calculate quarterly payments:
Example:
You withdraw $40,000 from TPT during the year. Expenses: $6,000. Net: $34,000.
Estimated federal income tax: $34,000 in 12-22% brackets ≈ $4,200
Estimated SE tax: $34,000 × 0.9235 × 0.153 ≈ $4,800
Total estimated tax: $9,000
Quarterly payment: $9,000 ÷ 4 = $2,250 per quarter
Payment schedule:
- Q1 (Jan-Mar): Due April 15
- Q2 (Apr-May): Due June 15
- Q3 (Jun-Aug): Due September 15
- Q4 (Sep-Dec): Due January 15 (next year)
How to pay: IRS.gov/payments → Direct Pay (free, instant)
State-Specific Considerations
High-Tax States (CA, NY, NJ, OR, HI)
California example:
$50,000 TPT net profit:
- Federal + SE tax: ~$12,000
- State tax (9.3%): ~$4,650
- Total: $16,650 (33.3% effective rate)
Strategy: Maximize deductions. Every $1,000 in expenses saves $333 in taxes in CA.
No-Tax States (TX, FL, WA, NV, WY, SD, TN, NH, AK)
Texas example:
$50,000 TPT net profit:
- Federal + SE tax: ~$12,000
- State tax: $0
- Total: $12,000 (24% effective rate)
Strategy: Living in a no-tax state saves 5-10% on every TPT dollar. This is a huge advantage for full-time traders.
Move-for-Tax-Savings Analysis
Scenario: You make $100K/year from TPT. Considering moving from California to Texas.
CA taxes: $100K × 9.3% = $9,300/year
TX taxes: $0
10-year savings: $93,000
If you're a full-time prop trader, moving to a no-tax state can save six figures over a decade.
International Traders: How TPT Withdrawals Are Taxed
Non-US traders:
TakeProfitTrader may withhold 30% for US taxes (per IRS rules for foreign persons). You'll need to file Form W-8BEN to potentially reduce withholding if your country has a tax treaty with the US.
Your home country taxes:
You're likely still required to report TPT income in your home country. Check with a local tax professional on how prop firm income is classified (employment income, business income, or capital gains varies by country).
Double taxation:
You may owe taxes in both the US and your home country. Tax treaties often provide credits to avoid double taxation, but you need professional guidance.
Trader Tax Status (Mark-to-Market Election)
What is it?
Mark-to-market (MTM) accounting treats all open positions as if they're closed at year-end. Gains/losses are ordinary income, not capital gains.
Benefits:
- No $3,000 capital loss limitation
- No wash sale rules
- All losses are fully deductible
Drawbacks:
- Can't get long-term capital gains rates (not relevant for prop firms)
- Must elect by April 15 of the year you want it to apply
- Hard to reverse
Does it help TPT traders?
Not really. Your TPT income is already 1099-NEC (ordinary income), so MTM election doesn't change how TPT withdrawals are taxed. MTM mainly benefits traders with large personal trading accounts who want to deduct unlimited losses.
Bottom line: MTM is overkill for most TPT traders. Focus on maximizing business deductions instead.
Advanced Tax Strategies for High Earners
Strategy 1: Solo 401(k) Contributions
If you made $50K+ net profit from TPT, you can set up a Solo 401(k) and contribute:
Employee contribution: Up to $23,000 (2026 limit)
Employer contribution: Up to 25% of net self-employment income
Total max contribution: $69,000 (or $76,500 if age 50+)
Tax benefit:
$50,000 net profit, contribute $23,000 to Solo 401(k):
Taxable income reduced to $27,000
Tax savings: ~$7,000-9,000 depending on bracket
Strategy 2: S-Corp Election
If you're making $80K+ net profit, consider electing S-Corp status.
How it works:
You pay yourself a "reasonable salary" (W-2) and take the rest as distributions. Distributions avoid self-employment tax (15.3%).
Example:
$100K net profit:
- Pay yourself $50K salary (subject to SE tax)
- Take $50K distribution (no SE tax)
- SE tax savings: $50K × 0.153 = $7,650
Downside: Requires bookkeeping, payroll processing, more complex tax filings. Only worth it above $80-100K profit.
Strategy 3: Qualified Business Income (QBI) Deduction
If you qualify, you can deduct 20% of your qualified business income (net profit from Schedule C).
Example:
$50,000 net profit from TPT
$50,000 × 0.20 = $10,000 deduction
This reduces your taxable income by $10K, saving ~$2,500-4,000 in taxes depending on bracket.
Who qualifies: Most self-employed individuals, but phase-outs apply above $191,950 (single) / $383,900 (married).
Bottom Line
TakeProfitTrader withdrawals are taxed as self-employment income at combined rates of 25-52% depending on total income, with three tax components: federal income tax (10-37% based on brackets), self-employment tax (15.3% for Social Security and Medicare), and state income tax (0-13.3% varying by state).
Every dollar withdrawn increases your tax obligation, with effective rates typically landing at 25-40% for most traders after business expense deductions. Safe practice is setting aside 30-35% of every withdrawal for tax payments, making quarterly estimated tax payments if you expect to owe $1,000+, and aggressively deducting all business expenses including Test subscriptions ($2,040/year for one account), platform software, home office, and equipment.
Traders in high-tax states like California face 8-10% higher effective rates than those in no-tax states like Texas or Florida, making location a significant long-term tax optimization factor for full-time prop traders. For high earners (($80K+ net profit), advanced strategies like Solo 401(k) contributions, S-Corp elections, and QBI deductions can reduce tax burden by an additional 15-25%, but require professional tax guidance to implement correctly.
