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tax-implications

Tax Implications of Prediction Market Trading

📅 Dec 27, 2025✍️ Poly Team⏱ 14 min read

Disclaimer: This article provides general information only and should not be considered tax advice. Tax laws vary by jurisdiction and change frequently. Always consult with a qualified tax professional about your specific situation.

Are Prediction Market Gains Taxable?

In most jurisdictions, yes. Profits from prediction market trading are generally considered taxable income. The specific classification (capital gains, gambling income, or other) depends on your country's tax laws and how you trade.

United States Tax Treatment

In the US, the tax treatment of prediction markets is still evolving. Here are the main considerations:

Capital Gains vs. Gambling Income

If you're trading on a regulated platform like Kalshi, your gains may be treated as capital gains. This is generally favorable because you can offset gains with losses. If trading is considered gambling, you can still deduct losses, but only up to the amount of your winnings.

Short-Term vs. Long-Term

Most prediction market trades are held for less than a year, making them short-term capital gains, which are taxed at your ordinary income rate. Long-term capital gains (assets held over a year) get preferential tax rates, but this rarely applies to prediction markets.

Record Keeping Is Critical

Keep detailed records of every trade: date, amount, price, fees, and outcome. Many platforms don't provide comprehensive tax documents, so you'll need to track this yourself. Consider using a spreadsheet or specialized tax software.

Offshore Platforms

Trading on offshore platforms like Polymarket doesn't exempt you from taxes. US citizens must report worldwide income. The lack of official tax forms from these platforms makes record-keeping even more important.

Crypto Considerations

If you're using cryptocurrency (like USDC) to trade, you may have additional tax obligations. Converting USD to USDC and back can trigger taxable events. Each conversion might need to be reported separately.

International Traders

Tax treatment varies significantly by country. Some jurisdictions treat prediction market trading as gambling (which may be tax-free), others as investment income, and some have specific regulations for crypto-based platforms. Research your local laws or consult a tax professional.

When to Seek Professional Help

Consider consulting a tax professional if you:

  • Have significant trading profits (over $10,000)
  • Trade frequently (hundreds of transactions per year)
  • Use multiple platforms or cryptocurrencies
  • Are unsure about your reporting obligations