Can I deduct fees for evaluations I failed?

Yes. Fees for failed evaluations and resets are still deductible business expenses because they were paid in pursuit of trading income, whether or not the challenge was passed.

Where do I deduct prop firm fees?

Report them on Schedule C in Part V, Other Expenses, on the same return where you report your prop firm payouts as income. Your tax is calculated on the net profit.

What records do I need for evaluation fees?

Keep receipts or invoices for each purchase, card or bank statements showing payment, and a spreadsheet tracking firm, account and fee amounts alongside your payout records.

Are Prop Firm Evaluation Fees Tax Deductible? (Yes—Here's How)

Yes—prop firm evaluation fees are generally tax deductible as business expenses. If you pay for challenges, evaluations, resets, or monthly subscriptions with firms like Apex, Topstep, or FTMO, those costs reduce your taxable income. Here's how to claim them correctly.

Why Evaluation Fees Are Deductible

When you receive prop firm payouts, the IRS treats you as an independent contractor running a trading business. The fees you pay to access funded accounts are **ordinary and necessary business expenses**—the cost of earning that income.

Which Fees Qualify

Evaluation/challenge fees - The upfront cost of one-step or two-step evaluations

Reset fees - Fees paid to restart a failed evaluation

Monthly subscription fees - Recurring account or platform fees

Activation fees - Fees to activate a funded account after passing

Data and platform fees - Market data or platform charges bundled with your account

What About Failed Evaluations?

Yes—even fees for evaluations you failed are deductible. You paid them in pursuit of business income, which makes them legitimate business expenses whether or not you passed. Many traders leave hundreds or thousands of dollars of deductions on the table by ignoring failed challenge fees.

Where to Deduct Them

Deduct prop firm fees on **Schedule C** (the same form where you report your payouts):

Report all payouts as income on Line 1

List evaluation, reset, and subscription fees as expenses in Part V (Other Expenses)

Your net profit is what gets taxed

Records You Should Keep

Receipts or invoices for every evaluation and reset purchase

Credit card or bank statements showing the payments

A simple spreadsheet tracking each firm, account, and fee

Payout records to match against your fee deductions

Example

You earned $40,000 in Apex payouts and spent $6,000 on evaluations, resets, and subscriptions during the year. You report $40,000 of income and $6,000 of expenses—only the $34,000 net is subject to income and self-employment tax.

One Caveat

If you pay evaluation fees but never receive any payouts and have no other trading business income, the IRS could question whether you're genuinely in business. Keep records showing your trading activity and profit intent. A trader tax specialist can help you structure this correctly.