How Polymarket and Kalshi winnings are taxed
Prediction market profits are taxable even if no one sends you a form. The IRS hasn't said exactly how, so tax pros use one of three approaches. Here's what each means and what records you'll need.
The short version
- It's taxable. Profits count as income whether or not you get a tax form.
- There's no official answer yet. The IRS hasn't issued guidance on prediction market contracts.
- Pick an approach with a pro and stick to it. Tax professionals generally recommend applying the same method every year and writing down why.
- Keep records of every trade: when you got in, when it ended, what you paid, what you got back, and the gain or loss.
Will you get a tax form?
Polymarket: for on-chain trading from your own wallet, no. Polymarket doesn't issue tax forms for it, so your wallet history is your record. Polymarket's US-regulated app may follow rules closer to Kalshi's.
Kalshi: it issues some forms (for example for interest, rewards and crypto transfers) and offers profit-and-loss statements, but not a form that reports your event-contract profits for you.
Either way, you'll probably need to build the record of your trades yourself.
The three approaches tax pros use
| Approach | How it's reported | What happens to losses |
|---|---|---|
| Capital gains | Each position on Form 8949, totals on Schedule D. Gains held a year or less are taxed at ordinary rates. | Losses offset gains. Up to $3,000 of net losses a year can offset other income, and the rest carries forward. |
| Other income | Net profit as "other income" on Schedule 1 (line 8z) of Form 1040, taxed at ordinary rates. | Generally can't be deducted. |
| Gambling | Winnings reported as income. Most often suggested for sports-outcome contracts. | Deductible only if you itemize, on Schedule A. Starting in 2026, deductions are limited to 90% of losses and can't exceed winnings. |
What about Section 1256 (the "60/40" rule)? Some traders argue that contracts on Kalshi, a CFTC-regulated exchange, qualify for Section 1256 treatment, where 60% of gains are taxed at long-term rates. Many professionals consider this aggressive without IRS guidance, and it isn't generally argued for Polymarket's offshore, on-chain markets.
A Polymarket wrinkle: the stablecoin
Polymarket trades settle in USDC, a cryptocurrency. Converting other crypto into USDC to fund your account, or USDC back out, can be a separate taxable event from the trades themselves. If you move crypto in and out, keep those records too.
Losses you might be missing
On Polymarket, a losing position often never gets "redeemed", because there's nothing to collect. Some tools only show positions you closed or redeemed, which leaves those losses out. Under approaches where losses count, missing them means overpaying. Make sure your record includes resolved positions you never cashed out.
The records you need
- Date you got into each position, and date it ended (sold or resolved)
- Cost basis: what you paid, including fees
- Proceeds: what you received (zero for a resolved loss)
- Gain or loss on each position
- For Polymarket, your crypto deposits and withdrawals, with their dollar value at the time
Get your Polymarket record in one click
Edgebook builds a per-year spreadsheet of every finished position from your wallet: dates, cost basis, proceeds and gain or loss, including resolved losses you never redeemed. Free, read-only, no sign-in. Hand it to your tax pro.
Get your tax exportNot yet included: the date you first bought into each position, and crypto deposits and withdrawals. We're working on both.
Sources
- Keeper: How to file taxes on Kalshi and Polymarket earnings (updated Oct 9, 2026)
- CoinLedger: Prediction markets tax guide (updated Jun 23, 2026)