Key takeaway: Most jurisdictions impose tax obligations on prediction market earnings. How these earnings are classified—whether as capital gains, gambling proceeds, or standard income—depends on your location and how frequently you trade. Maintain comprehensive documentation of all your transactions without exception.
The uncomfortable question many traders avoid: are prediction market returns subject to taxation? The straightforward answer: in virtually all cases, yes. Below is a comprehensive regional analysis of how tax authorities across the globe handle prediction market earnings.
United States
The IRS has not released targeted rules for prediction markets, though established tax law still applies:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), gains face short-term capital gains taxation (taxed at standard income rates, reaching 37% maximum) when held for twelve months or fewer
- Gambling income: When classified as gambling activity, all proceeds count as taxable ordinary income reported on Schedule 1, Line 8b. Offsetting losses against winnings is permitted (Schedule A), though losses cannot reduce other income categories
- Kalshi (regulated): Generates 1099 forms for American participants. Polymarket does not issue these forms — yet you remain obligated to report earnings independently
United Kingdom
HMRC typically regards prediction market earnings as gambling proceeds, which remain untaxed for non-professional participants. That said:
- Should trading constitute your primary occupation, HMRC could reclassify it as trading income (subject to standard income taxation)
- Stablecoin transactions (such as USDC conversions) may generate separate taxable events involving capital appreciation
- Those operating as professional traders ought to consult HMRC directly
European Union
Member states apply differing tax frameworks:
- Germany: Returns taxed under private sale rules or as speculative earnings (consult our German tax guide)
- France: Stablecoin-denominated gains subject to a uniform 30% levy (PFU) encompassing prediction market returns
- Netherlands: Annual wealth assessment on total holdings (Box 3) supersedes taxation of realised profits
Australia
The ATO classifies prediction market returns as taxable revenue. Regular trading activity results in treatment as standard revenue. Those engaging infrequently may attempt to claim hobbyist status, though the ATO has grown more vigilant regarding blockchain-related ventures.
Record-keeping best practices
Across all regions, preserve documentation covering:
- Individual transactions: execution date, specific market, position type (YES/NO), entry price, volume
- Account funding and withdrawals including precise timing and dollar amounts
- Stablecoin/fiat exchange rates applicable at each transaction moment
- Invoices and receipts for all platform charges
- Final market outcomes and corresponding settlement payments
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-format datasets instantly from your transaction ledger. Start trading on PolyGram →