Key takeaway: Most jurisdictions levy tax on prediction market earnings. The specific classification—whether capital gains, gambling proceeds, or standard income—depends on your location and trading frequency. Document all transactions meticulously.
The conversation many traders avoid: are prediction market returns subject to taxation? The reality is straightforward: in virtually all cases, yes. Below is a detailed examination of how tax authorities across the globe handle prediction market earnings.
United States
The IRS has not released tailored rules for prediction markets, though established tax doctrine governs them:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains incur short-term capital gains tax (standard income rates, reaching 37%) when held fewer than twelve months
- Gambling income: When classified as gambling, all proceeds count as taxable ordinary income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A), though losses cannot reduce other income categories
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not—yet filers remain obligated to disclose earnings
United Kingdom
HMRC typically characterises prediction market earnings as gambling returns, which remain untaxed for non-professional participants. That said:
- Should trading constitute your principal occupation, HMRC may reclassify proceeds as trading income (liable to income tax)
- Stablecoin transactions (USDC conversions) may generate separate capital gains implications
- Those operating as professional traders ought to obtain HMRC clarification
European Union
Member states apply differing tax frameworks:
- Germany: Earnings taxed under private asset disposals or speculative gains provisions (consult our German tax guide)
- France: Digital asset gains subject to a uniform 30% rate (PFU), encompassing prediction market returns denominated in crypto
- Netherlands: Portfolio-based wealth levy (Box 3) applied to holdings rather than realised returns
Australia
The ATO categorises prediction market earnings as assessable revenue. Frequent traders face treatment as ordinary income earners. Occasional participants might pursue hobbyist classification, though the ATO has grown stricter regarding crypto-related ventures.
Record-keeping best practices
Across all jurisdictions, preserve documentation covering:
- Each transaction: timestamp, venue, bet type (YES/NO), entry cost, stake size
- Account movements including deposit and withdrawal records with exact times and figures
- Stablecoin and fiat exchange rates applicable at each transaction moment
- Platform charge documentation
- Settlement details and final payout records
PolyGram's tax export feature produces IRS 8949-ready summaries and EU MiCA-formatted data exports directly from your transaction ledger. Start trading on PolyGram →