Prediction Market Taxes: What You Need to Know
Key takeaway: Prediction market profits are taxable in most jurisdictions. The classification varies — capital gains, gambling income, or ordinary income — depending on your country and trading pattern. Always keep detailed records of every trade.
The question nobody wants to ask: do you pay taxes on prediction market winnings? Short answer: almost certainly yes. Here is a jurisdiction-by-jurisdiction breakdown of how prediction market profits are treated by tax authorities worldwide.
United States
The IRS has not issued specific guidance on prediction market taxation, but general principles apply:
- Capital gains treatment: If prediction market shares are treated as property (like crypto), profits are subject to short-term capital gains tax (ordinary income rates, up to 37%) for shares held under one year
- Gambling income: If classified as gambling, all winnings are taxable as ordinary income on Schedule 1, Line 8b. Losses can offset winnings (Schedule A) but not other income
- Kalshi (regulated): Issues 1099 forms for US traders. Polymarket does not — but you are still legally required to report
United Kingdom
HMRC generally treats prediction market profits as gambling winnings, which are tax-free for recreational bettors. However:
- If trading is your primary income source, HMRC may classify it as trading income (subject to income tax)
- Crypto aspects (USDC conversion) may trigger separate capital gains events
- Professional traders should seek HMRC guidance
European Union
EU tax treatment varies by member state:
- Germany: Profits taxed as private disposal transactions or speculative income (see our German tax guide)
- France: Crypto gains taxed at a flat 30% (PFU) including prediction market profits settled in crypto
- Netherlands: Wealth tax on portfolio value (Box 3) rather than realised gains
Australia
The ATO treats prediction market profits as assessable income. If you are a regular trader, profits are considered ordinary income. Casual participants may argue for hobbyist treatment, but the ATO has been increasingly strict on crypto-adjacent activities.
Record-keeping best practices
Regardless of jurisdiction, maintain records of:
- Every trade: date, market, direction (YES/NO), price, quantity
- Deposits and withdrawals with timestamps and amounts
- USDC/fiat conversion rates at time of each transaction
- Platform fee receipts
- Market resolution outcomes and payout amounts
PolyGram's tax export feature generates IRS 8949-compatible reports and EU MiCA CSV exports automatically from your trading history. Start trading on PolyGram →