Hi all, I was approached by a headhunter regarding the possibility of trading (futures) for a prop firm using their capital. She says they pay 50% of the profit. I wonder how the taxation works in this case. Let's say we are profitable... If the firm pays capital gains tax and then pays out 50% of the profits to me, then I have to pay personal income tax on that too. Will it possible for me to pay straight capital gains tax on the 50% of the profits and avoid double taxation? Best.
What they mean is that (depending on the legal structure of your relationship with the prop shop) WORST CASE: Self-employment tax 15.3% Federal income tax 35% State income tax ?% total taxes, roughly 50% The above is the "subcontractor approach" that many prop shops use. They will issue you a 1099-MISC at the end of the year for your net take home amount. >>Will it possible for me to pay straight capital gains tax on the profits ? Yes, it is possible, but generally not if the prop shop issues a 1099-MISC. Rather they need to issue a K-1
Thanks! I thought about this little bit more. Let's say for $100 total trading profits, they would show $50 expense which would be sent to me. They would pay capital taxes for $50 gain and I would pay income tax for my general income of $50.