Prediction Market Taxes: What You Need to Know

The uncomfortable reality many traders avoid discussing: are prediction market returns subject to taxation? The answer is straightforward: in nearly every case, yes. Below is a comprehensive regional analysis of how tax authorities globally handle prediction market earnings.

United States

The IRS has provided no formal ruling specifically addressing prediction markets, though established tax law principles govern the treatment:

• Capital gains treatment: Should prediction market shares qualify as property assets (similar to digital currencies), gains face short-term capital gains taxation (taxed at standard income rates, maximum 37%) when held for less than twelve months
• Gambling income: When classified as gambling activity, all returns count as taxable ordinary income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A), though losses cannot reduce other taxable income
• Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not issue such forms — yet you remain obligated to self-report all earnings

United Kingdom

HMRC typically characterizes prediction market returns as gambling winnings, which remain untaxed for amateur participants. Nevertheless, certain circumstances apply:

• Should trading constitute your primary occupation, HMRC may reclassify activity as trading income (subject to income tax liability)
• Stablecoin transactions (such as USDC conversion) might create separate capital gains obligations
• Those engaged in systematic trading should obtain formal HMRC clarification

European Union

Member states implement divergent approaches to prediction market taxation:

• Germany: Earnings taxed under private disposition rules or as speculative gains (consult our German tax guide)
• France: Digital asset gains subject to a uniform 30% rate (PFU) covering prediction market returns denominated in crypto
• Netherlands: Asset-based taxation on total portfolio holdings (Box 3) instead of transaction-level gains

Australia

The ATO classifies prediction market earnings as taxable revenue. Those engaged in frequent trading face ordinary income classification. Occasional participants might pursue non-professional status, yet the ATO has demonstrated heightened scrutiny regarding crypto-related ventures.

Record-keeping best practices

Across all regions, document the following:

1. Each transaction: execution date, contract identifier, position type (YES/NO), entry cost, volume
2. Account funding and withdrawals including exact timestamps and values
3. Stablecoin and fiat exchange rates applicable at each transaction moment
4. Platform expense documentation
5. Contract settlement details and received payouts

PolyGram's tax export feature creates IRS 8949-ready documentation and EU MiCA-formatted datasets directly from your transaction log. Start trading on PolyGram →