Key takeaway: Most jurisdictions impose tax obligations on prediction market earnings. The specific classification—whether capital gains, gambling income, or standard income—depends on your location and trading behaviour. Maintaining comprehensive records of all transactions is essential.
The question many traders avoid: are prediction market returns subject to taxation? The reality: 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 targeted guidance on prediction market taxation, though established tax principles still apply:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains are taxed at short-term capital gains rates (standard income brackets, up to 37%) when held for less than twelve months
- Gambling income: When treated as gambling activity, all proceeds count as ordinary income reportable 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 these forms — yet traders remain obligated to self-report all gains
United Kingdom
HMRC typically categorises prediction market earnings as gambling proceeds, which remain untaxed for non-professional participants. Nevertheless:
- Should trading constitute your primary occupation, HMRC may reclassify activity as trading income (subject to standard income tax)
- Stablecoin conversions (such as USDC transactions) may generate separate taxable events
- Those engaged in full-time trading ought to obtain formal HMRC clarification
European Union
Across EU nations, prediction market taxation differs significantly:
- Germany: Returns taxed as private asset disposals or speculative gains (consult our German tax guide)
- France: Digital asset gains subject to a fixed 30% levy (PFU), encompassing prediction market returns denominated in cryptocurrency
- Netherlands: Portfolio wealth assessment (Box 3) applies instead of transaction-level gains taxation
Australia
The ATO deems prediction market earnings as taxable revenue. Frequent traders face ordinary income classification on all profits. Occasional participants may attempt to claim hobbyist status, though the ATO has adopted stricter enforcement regarding blockchain-related trading.
Record-keeping best practices
Across all jurisdictions, preserve documentation covering:
- All transactions: execution date, contract name, position type (YES/NO), entry price, contract size
- Account funding and redemptions with exact timestamps and values
- Exchange rates for USDC and fiat conversions at each transaction point
- Documentation of all platform charges
- Contract settlement details and corresponding distributions
PolyGram's tax export feature automatically produces IRS 8949-ready statements and EU MiCA-compliant data exports derived from your complete trading record. Start trading on PolyGram →