Key takeaway: In virtually all jurisdictions, earnings from prediction markets are subject to taxation. How these earnings are categorised—whether as capital gains, gambling revenue, or standard income—depends on your location and the frequency of your trading activity. It is essential to maintain comprehensive documentation of all your transactions.
The uncomfortable truth many traders avoid: are prediction market returns subject to tax obligations? The reality is straightforward: in the vast majority of cases, yes. Below is a comprehensive examination of how tax authorities across the globe handle prediction market earnings.
United States
The IRS has not released targeted rules for prediction market taxation, though overarching tax principles remain applicable:
- Capital gains treatment: Should prediction market shares qualify as property (similar to digital assets), returns face short-term capital gains taxation (taxed at ordinary income rates, reaching as high as 37%) when held for less than twelve months
- Gambling income: When classified under gambling rules, all returns must be reported as ordinary income via Schedule 1, Line 8b. Gambling losses may reduce gambling winnings (Schedule A) but cannot reduce other taxable income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not—yet participants remain obligated to self-report earnings
United Kingdom
HMRC typically categorises prediction market earnings as betting income, which carries no tax burden for casual participants. Nevertheless, several considerations apply:
- Should trading constitute your primary occupation, HMRC may reclassify it as business income (liable to income tax)
- Stablecoin conversions (such as USDC transactions) may generate separate capital gains obligations
- Those engaged in political markets or other high-frequency trading should consult HMRC directly
European Union
Across EU nations, prediction market taxation differs significantly:
- Germany: Returns treated as private asset dispositions or speculative earnings (consult our German tax guide)
- France: Digital asset returns taxed uniformly at 30% (PFU), encompassing prediction market returns denominated in stablecoins
- Netherlands: Portfolio-based wealth assessment (Box 3) applied instead of transaction-level gain realisation
Australia
The ATO classifies prediction market earnings as taxable revenue. Those engaged in frequent trading face ordinary income taxation on their returns. Occasional participants may attempt to claim hobbyist status, though the ATO has adopted a more rigorous stance toward blockchain-related financial activities in recent years.
Record-keeping best practices
Across all jurisdictions, you should document:
- All transactions: execution date, contract identifier, position type (YES/NO), entry price, volume
- Account movements including deposit and withdrawal dates, times, and values
- Exchange rates for stablecoin and fiat conversions at the moment of each transaction
- Receipts for all platform charges and commissions
- Contract settlement dates and corresponding payout values
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-formatted datasets directly from your transaction log. Start trading on PolyGram →