Key takeaway: Prediction market earnings face taxation across most jurisdictions. How they are categorised—whether as capital gains, gambling revenue, or standard income—hinges on your location and trading frequency. Maintaining comprehensive documentation of all transactions is essential.
The uncomfortable reality many traders avoid: are prediction market returns subject to tax? The answer is straightforward: in virtually all cases, yes. Below is a comprehensive regional analysis of how tax authorities globally handle prediction market earnings.
United States
The IRS has not released targeted rules for prediction market taxation, though established tax principles remain relevant:
- Capital gains treatment: When prediction market shares qualify as property (analogous to digital assets), gains incur short-term capital gains tax (at standard income rates, reaching 37%) on positions closed within twelve months
- Gambling income: Should gambling classification apply, all returns count as taxable ordinary income reported 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 such forms — yet you remain obligated to declare earnings
United Kingdom
HMRC typically characterises prediction market earnings as gambling returns, which remain untaxed for non-professional participants. That said:
- When trading constitutes your primary occupation, HMRC may reclassify it as professional trading income (liable to income tax)
- Stablecoin transactions (such as USDC conversions) may generate separate capital gains liabilities
- Those operating as full-time traders should obtain formal HMRC clarification
European Union
Across the EU, member nations apply divergent tax frameworks:
- Germany: Earnings taxed under private asset disposal rules or as speculative gains (consult our German tax guide)
- France: Digital asset gains subject to a uniform 30% levy (PFU), encompassing prediction market returns denominated in crypto
- Netherlands: Imposes annual wealth assessments on holdings (Box 3) instead of transaction-based taxation
Australia
The ATO classifies prediction market earnings as taxable revenue. For those engaged in frequent trading, such earnings constitute standard taxable income. Occasional participants might attempt to claim hobbyist status, though the ATO has adopted stricter enforcement regarding blockchain-related ventures.
Record-keeping best practices
Across all jurisdictions, you should document:
- All transactions: timestamp, venue, position type (YES/NO), entry price, volume
- Fund movements including dates, times, and values
- Stablecoin and fiat exchange rates applicable at each transaction point
- Invoices for platform charges
- Final market results and corresponding settlement amounts
PolyGram's tax export feature creates IRS 8949-ready documentation and EU MiCA-formatted datasets directly from your transaction log. Start trading on PolyGram →