Key takeaway: Prediction market earnings face taxation across virtually all jurisdictions. How authorities categorise these returns—whether as capital gains, gambling proceeds, or standard income—hinges on your location and trading frequency. Maintaining comprehensive documentation of all transactions is essential.
The uncomfortable reality many traders avoid: are prediction market returns subject to tax? The answer is straightforward: in nearly every case, yes. Below is a thorough regional analysis of how tax authorities globally handle prediction market returns.
United States
The IRS has not released targeted rules for prediction market taxation, yet standard tax law provisions apply:
- Capital gains treatment: Should prediction market shares qualify as property (comparable to digital assets), gains face short-term capital gains taxation (at standard income rates, reaching 37%) when held for twelve months or less
- Gambling income: When treated as gambling activity, all returns become taxable ordinary income reported on Schedule 1, Line 8b. Gambling losses may reduce gambling winnings (Schedule A) though cannot reduce other taxable income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not—yet you remain obligated to declare earnings
United Kingdom
HMRC typically categorises prediction market returns as gambling proceeds, which remain untaxed for amateur players. That said:
- When trading constitutes your main occupation, HMRC may reclassify returns as trading income (subject to income tax)
- Stablecoin conversions (USDC transactions) may generate separate taxable capital events
- Those operating as professional traders should request formal HMRC direction
European Union
Member states apply divergent approaches to prediction market taxation:
- Germany: Returns subject to tax as private asset disposals or speculative earnings (consult our German tax guide)
- France: Stablecoin-settled returns taxed uniformly at 30% (PFU) alongside other crypto gains
- Netherlands: Portfolio-based wealth levy (Box 3) on aggregate holdings rather than transaction-level gains
Australia
The ATO views prediction market returns as income subject to assessment. Frequent traders face classification as ordinary income earners. Occasional participants might claim hobbyist status, yet the ATO has grown stricter regarding blockchain-related ventures.
Record-keeping best practices
Across all territories, preserve documentation covering:
- All transactions: timestamp, contract name, position (YES/NO), entry price, size
- Account inflows and outflows with precise timing and values
- Stablecoin and fiat exchange rates applicable to each transaction
- Platform cost documentation
- Settlement details and final payouts per market
PolyGram's tax export feature produces IRS 8949-ready documents and EU MiCA-formatted datasets instantly from your trading record. Start trading on PolyGram →