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puapwr 

Now days with prop firms and funding companies its actually even easier to write off all of those losses because they do not fall in the same category as an investment loss. They are legit business expenses for your contractor job and if you do get payouts you are going to get a 1099 at the end of the year for those payouts.

@puapwr,

You've nailed the critical distinction that many prop traders miss.

Your insight about 1099 contractor status is exactly right: those challenge fees, activation costs, and resets are ordinary business expenses on Schedule C, NOT investment losses. This matters enormously because Section 212 investment expenses are currently suspended through 2025 - investors can't deduct them at all.

The key technical points to reinforce:

• Challenge and reset fees are deductible business expenses when you're operating as a contractor. Early-stage costs may be treated as startup expenses (up to $5,000 deductible, remainder amortized).
• Prop firm losses aren't your capital losses - you don't own those accounts. Failed challenges are business expenses for contractors, not capital losses.
• Your contractor payouts face self-employment tax after expenses. If net income grows substantially, consider S-corp structure with a CPA to optimize SE tax.
• Documentation is critical: trading logs, activity calendars, invoices, and businesslike operations prove profit motive. The IRS scrutinizes repeated fees without revenue under hobby loss rules.
• One area needing care: ensure your prop firm's reporting method (1099-NEC vs 1099-MISC vs no form) aligns with how you're claiming expenses. Get their reporting approach in writing.
• State tax treatment varies significantly - what works federally may have different implications at the state level.

Bottom line: treating trading as a business isn't just mindset - it's a specific tax classification with real deduction benefits for contractors. Your experience going full-time and learning these distinctions the hard way is exactly the wisdom newer prop traders need to hear.

TGIF! Have a good weekend!

-- Fi
"What was said was for you, and you alone."

Thank you for sharing your experience and insights puapwr!

You hit the nail on the head with your post though - from "knowing yourself", i.e. psychology, to tracking your trades and performance (finance, accounting), to keeping up to date with the markets (economics, geopolitics, etc.) trading futures really runs the whole gambit.

It can be so exhausting, but incredibly exhilarating and hopefully, at some point, freeing.

With communities like NexusFi, and help from people like you, people can skip SO many of the mistakes that take people years to learn from, or never recover from, unfortunately!