Key takeaway: Gains from prediction market trading face tax obligations across virtually all jurisdictions. How these gains are categorised—whether as capital gains, wagering income, or standard income—depends on your location and the frequency of your trading activity. Maintaining comprehensive records of all transactions is essential.
The uncomfortable reality many traders avoid: are prediction market returns subject to taxation? The answer is straightforward: in the vast majority of cases, yes. Below is a comprehensive regional analysis of how tax authorities worldwide handle prediction market returns.
United States
The IRS has not published detailed rules addressing prediction market taxation directly, yet established tax principles still apply:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains face short-term capital gains tax (taxed at standard income rates, reaching 37%) when held for fewer than twelve months
- Wagering income: When treated as wagering activity, all proceeds become 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 participants retain the obligation to self-report earnings
United Kingdom
HMRC typically characterises prediction market returns as wagering proceeds, which remain untaxed for non-professional participants. Nevertheless, certain conditions apply:
- Should prediction market activity represent your principal occupation, HMRC may reclassify it as trading income (subject to income tax obligations)
- Stablecoin conversions (such as USDC transactions) may constitute separate taxable events
- Those engaged in professional trading should request specific guidance from HMRC
European Union
Member states within the EU implement divergent tax frameworks:
- Germany: Returns are taxed as private asset disposals or speculative gains (consult our German tax guide)
- France: Digital asset gains face a uniform 30% levy (PFU), encompassing prediction market returns denominated in digital currencies
- Netherlands: Imposes wealth-based taxation on holdings (Box 3) rather than gains realised through sales
Australia
The ATO classifies prediction market returns as taxable receipts. Frequent traders face assessment of returns as standard income. Those participating occasionally might attempt to claim hobbyist status, though the ATO has adopted stricter enforcement regarding blockchain-related ventures.
Record-keeping best practices
Across all jurisdictions, preserve documentation covering:
- All transactions: entry date, specific market, position type (YES/NO), entry price, volume
- Account movements including deposit/withdrawal dates, times, and sums
- Exchange rates for stablecoin/fiat conversions at each transaction moment
- Documentation of platform charges
- Final market outcomes and corresponding settlement amounts
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-formatted data exports instantly from your transaction log. Start trading on PolyGram →