Key takeaway: Most jurisdictions impose tax obligations on prediction market earnings. How these earnings are categorised—whether as capital gains, gambling proceeds, or standard income—depends on your location and trading activity patterns. Comprehensive documentation of all transactions is essential.
The uncomfortable reality many traders face: are prediction market returns subject to taxation? The answer is straightforward: in virtually all cases, yes. Below is a detailed examination of how tax authorities across different regions classify and treat prediction market earnings.
United States
Although the IRS has not published explicit rules governing prediction market taxation, established tax principles still apply:
- Capital gains treatment: Should prediction market shares qualify as property (comparable to crypto assets), gains face short-term capital gains taxation (at standard income rates, reaching 37%) when held for less than twelve months
- Gambling income: Where classified as wagering activity, all returns constitute taxable ordinary income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A), though deductions cannot reduce other income sources
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not provide such forms — yet reporting remains a legal obligation
United Kingdom
The Revenue treats prediction market earnings predominantly as gambling proceeds, which remain untaxed for non-professional participants. Nevertheless:
- Should trading constitute your principal occupation, the Revenue may reclassify activity as commercial trading (subject to standard income tax)
- Stablecoin transactions (USDC conversions) may create separate taxable events under capital gains rules
- Those engaged professionally should obtain formal clearance from tax authorities
European Union
Across EU nations, prediction market taxation differs substantially:
- Germany: Returns taxed either as proceeds from asset disposals or speculative trading gains (consult our German tax guide)
- France: Digital asset gains subject to a fixed 30% levy (PFU) covering prediction market returns denominated in crypto
- Netherlands: Applies wealth taxation on aggregate holdings (Box 3) rather than realised profits
Australia
The Australian Taxation Office categorises prediction market earnings as taxable revenue. Frequent traders face assessment as ordinary income earners. Occasional participants may attempt to claim hobbyist status, yet the ATO has adopted stricter enforcement regarding blockchain-related ventures.
Record-keeping best practices
Across all regions, preserve documentation covering:
- All transactions: execution date, contract name, position type (YES/NO), entry price, volume
- Account movements including deposit and withdrawal dates, times, and values
- Stablecoin and fiat exchange rates applicable at each transaction moment
- Platform charges and associated documentation
- Final market outcomes and settlement proceeds
PolyGram's tax export feature produces IRS 8949-formatted statements and EU MiCA-compliant datasets directly from your transaction ledger. Start trading on PolyGram →