Key takeaway: In most countries, earnings from prediction markets are subject to tax. How they're categorised—whether as capital gains, gambling revenue, or standard income—hinges on local law and your trading behaviour. Comprehensive documentation of all transactions is essential.
The uncomfortable truth many traders avoid: are prediction market returns taxable? The reality is straightforward: in virtually all cases, yes. Below is a detailed country-by-country examination of how tax authorities globally handle prediction market earnings.
United States
The IRS has not released formal rules on prediction market taxation, though standard tax law principles take effect:
- Capital gains treatment: Should prediction market shares qualify as property (comparable to digital assets), returns face short-term capital gains tax (taxed at marginal rates, reaching 37%) when held for less than twelve months
- Gambling income: When treated as gambling, 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 taxable income
- Kalshi (regulated): Generates 1099 documentation for American participants. Polymarket does not issue such forms — yet you remain obligated to self-report
United Kingdom
HMRC typically regards prediction market earnings as betting returns, which remain untaxed for hobbyist participants. Nevertheless:
- Should trading constitute your primary livelihood, HMRC may reclassify it as trading income (subject to income tax)
- Stablecoin conversions (such as USDC transactions) may produce separate taxable capital gains events
- Those operating as professional traders ought to request formal guidance from HMRC
European Union
Across the EU, tax handling of prediction market returns differs significantly between nations:
- Germany: Returns taxed under private asset disposal rules or speculative trading income (consult our German tax guide)
- France: Stablecoin-settled returns taxed uniformly at 30% (PFU) alongside other crypto earnings
- Netherlands: Annual wealth assessment on total portfolio holdings (Box 3) rather than transaction-based gains
Australia
The ATO classifies prediction market earnings as taxable revenue. Frequent traders face treatment as ordinary income earners. Non-professional participants may attempt to claim hobbyist status, yet the ATO has grown stricter in scrutinising blockchain-related ventures.
Record-keeping best practices
Across all jurisdictions, retain documentation covering:
- All transactions: timestamp, venue, outcome selection (YES/NO), entry price, volume
- Fund movements including transfer dates, amounts, and times
- Stablecoin and fiat exchange rates applicable at each transaction point
- Invoices for platform charges
- Final market results and settlement payouts
PolyGram's tax export feature produces IRS 8949-ready documentation and EU MiCA-formatted data exports directly from your transaction ledger. Start trading on PolyGram →