Key takeaway: Prediction market earnings face taxation across virtually all jurisdictions. How authorities classify them—whether as capital gains, wagering proceeds, or standard income—hinges on your location and trading frequency. Comprehensive documentation of all transactions is essential.
The uncomfortable reality many traders avoid: are prediction market returns subject to tax? The straightforward answer: in the vast majority of cases, yes. Below is a comprehensive regional analysis of how tax authorities globally handle prediction market earnings.
United States
The IRS has yet to publish dedicated 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 are taxed under short-term capital gains rules (standard income brackets, maximum 37%) when held fewer than twelve months
- Gambling income: When characterised as gambling, all proceeds count as taxable ordinary income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A), yet losses cannot reduce other taxable income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not—yet you remain obligated to declare earnings
United Kingdom
HMRC typically categorises prediction market earnings as betting proceeds, which remain untaxed for amateur participants. Nevertheless:
- When trading constitutes your main livelihood, HMRC may reclassify it as professional trading income (subject to income tax)
- Stablecoin transactions (such as USDC conversions) may generate separate taxable events
- Those engaged in systematic trading ought to consult HMRC directly
European Union
Member states apply divergent taxation frameworks:
- Germany: Earnings treated as private disposition proceeds or speculative gains (consult our German tax guide)
- France: Digital asset gains subject to flat 30% levy (PFU), encompassing prediction market returns denominated in crypto
- Netherlands: Portfolio-based wealth assessment (Box 3) levied on holdings rather than realised profits
Australia
The ATO classifies prediction market earnings as taxable revenue. Frequent traders face assessment of earnings as standard income. Non-professional traders might pursue hobby classification, though the ATO has adopted stricter enforcement regarding blockchain-linked ventures.
Record-keeping best practices
Across all regions, document the following:
- All transactions: timestamp, contract identifier, position type (YES/NO), entry rate, volume
- Account movements including dates, descriptions, and corresponding values
- Stablecoin and fiat exchange rates applicable to each transaction moment
- Transaction cost documentation
- Settlement information and final payouts per contract
PolyGram's tax export feature produces IRS 8949-formatted summaries and EU MiCA-compliant datasets instantly from your activity log. Start trading on PolyGram →