Do prop firm payouts count as Section 1256 gains?

Not necessarily. Many prop firm payouts are paid as independent-contractor income (often reported on a 1099), not capital gains from contracts you own. How your income is taxed depends on your specific arrangement — confirm with a tax professional.

Is this futures tax calculator accurate?

It gives an estimate based on the rates you enter. It does not account for state tax, net investment income tax, deductions, the alternative minimum tax, or loss carrybacks. Use it for ballpark planning only and consult a professional for filing.

Futures Tax Calculator: Section 1256 60/40 Estimator

Futures Tax Calculator (Section 1256)

Q: What is the Section 1256 60/40 rule?

Under IRS Section 1256, gains and losses on regulated futures contracts are treated as 60% long-term and 40% short-term regardless of how long you held the position. The blended rate is usually lower than taxing all gains as ordinary income.

See roughly what the IRS takes from your futures profits under the 60/40 rule — and how much that beats getting taxed like a paycheck. Enter your own rates so the math stays current.

Net futures gain for the year (profit after losses, in USD)

Your ordinary income tax rate (your top marginal federal bracket, %)

Your long-term capital gains rate (0%, 15% or 20% depending on income)

Section 1256 (60/40)

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If taxed as ordinary

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Not tax advice. This is a simplified federal estimate using the rates you enter. It ignores state tax, the 3.8% net investment income tax, the alternative minimum tax, deductions and loss carrybacks. Prop firm payouts are frequently 1099 contractor income, not Section 1256 gains — don't assume the 60/40 rule applies to your payouts. Confirm everything with a qualified tax professional before filing.

How the 60/40 rule works

Regulated futures contracts (the E-mini and Micro Nasdaq, S&P, etc.) fall under IRS Section 1256. Whatever your holding period — ten seconds or ten weeks — gains are split 60% long-term and 40% short-term and taxed at those respective rates. For an active scalper whose trades would otherwise all be short-term, that long-term 60% chunk is a meaningful discount. See the Section 1256 glossary entry for the short version.

FAQ

What is the Section 1256 60/40 rule?

Gains and losses on regulated futures are treated as 60% long-term and 40% short-term regardless of holding period. The blended rate usually beats ordinary income treatment.

Do prop firm payouts count as 60/40 gains?

Often not. Many payouts are paid as 1099 contractor income, not capital gains on contracts you own. It depends on your arrangement \u2014 ask a professional.

Is this calculator accurate?

It's a ballpark using the rates you enter. It skips state tax, NIIT, AMT, deductions and carrybacks. Planning tool only.

Educational estimate, not tax or financial advice. More tools in the free trading tools hub.