Key takeaway: Most jurisdictions impose tax obligations on prediction market earnings. The specific classification—whether capital gains, wagering income, or standard income—depends on your location and trading frequency. Maintain comprehensive documentation of all transactions without exception.
The uncomfortable reality many traders avoid: are prediction market returns subject to taxation? The answer is straightforward: 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 governing prediction market taxation, yet standard tax law remains applicable:
- Capital gains treatment: Should prediction market shares qualify as property (comparable to digital assets), gains face short-term capital gains taxation (taxed at standard income rates, reaching 37%) when held for twelve months or fewer
- Wagering income: When classified as wagering activity, all gains count as standard income reportable on Schedule 1, Line 8b. Wagering losses may reduce wagering gains (Schedule A) yet cannot reduce other income categories
- Kalshi (regulated): Produces 1099 documentation for American participants. Polymarket does not—nevertheless, you remain obligated to self-report earnings
United Kingdom
HMRC typically categorises prediction market earnings as wagering gains, which carry no tax burden for non-professional participants. Nevertheless:
- Should trading represent your principal revenue stream, HMRC may reclassify it as trading revenue (liable to income tax)
- Stablecoin transactions (USDC conversion) may create separate capital gains circumstances
- Those engaged in professional trading ought to request formal HMRC clarification
European Union
Member states within the EU apply divergent tax frameworks:
- Germany: Earnings subject to tax as private sale transactions or speculative revenue (consult our German tax guide)
- France: Digital asset gains taxed uniformly at 30% (PFU) encompassing prediction market earnings denominated in digital currency
- Netherlands: Annual wealth assessment on holdings (Box 3) rather than actual realised gains
Australia
The ATO categorises prediction market earnings as taxable revenue. For those engaged in frequent trading, such earnings constitute standard revenue. Occasional participants might pursue a hobbyist classification, though the ATO has adopted stricter enforcement regarding digital asset-adjacent ventures.
Record-keeping best practices
Across all jurisdictions, preserve documentation covering:
- Each transaction: timestamp, venue, position (YES/NO), entry price, volume
- Account funding and withdrawals alongside exact timing and sums
- Stablecoin/fiat exchange rates applicable at each transaction moment
- Platform charge documentation
- Resolution details and settlement payouts for each market
PolyGram's tax export feature constructs IRS 8949-ready documentation and EU MiCA-format exports instantly from your transaction ledger. Start trading on PolyGram →