Prediction markets are getting more popular, but users still don’t know how to handle taxes. Millions of Americans who made money on these platforms are unsure how to report their earnings to the IRS.
The Rise of Prediction Markets and the Tax Puzzle
Prediction markets such as Kalshi and Polymarket have grown fast, drawing millions who bet on things like politics and the economy. Kalshi alone recorded over $12 billion in trade volume in March 2025, a figure that shows how big this market has become.
Thing is, while these platforms have been around for decades, the tax authorities haven’t kept up. The IRS hasn’t given clear guidance on reporting prediction market wins or losses. That leaves users and accountants scrambling to figure out how to play by the taxman’s rules, with no solid guidance.
Patrick Camuso, an accountant specialising in digital assets, puts it bluntly: "You have a vacuum of guidance. It puts the taxpayer in a bad position." His firm tends to take a conservative approach when advising clients, given the murky waters around these earnings.
Since there’s no official guidance, some report prediction market profits as gambling winnings, others as income, and some use rules for financial derivatives. But none of these fit perfectly.
Kalshi declined to comment on the tax issue, while neither the IRS nor Polymarket responded to inquiries.
Why Tax Reporting on Prediction Markets Is So Tricky
The issue is that prediction markets mix gambling, investing, and derivatives trading in ways that aren’t clear.
Are these winnings like gambling where you report each session’s profits and losses? Or like investments where you track the cost basis and capital gains? Or are they something else entirely? Camuso describes prediction markets as "a mix of wagering, derivatives and investment contracts all mixed together in a unique bucket."
Right now, for gamblers, the IRS requires tracking each betting session separately, which can be a nightmare. That means keeping a detailed record of every wager — not just the net result at the end of the year. For someone placing dozens or hundreds of bets, that adds up to a ton of paperwork.
Nate Meininger, a trader from Phoenix, jokes on social media that without guidance, you might as well skip declaring your income. But in real life, he says he relies on tax documents from platforms like Kalshi and works with an accountant. "I don't track it myself," he admits. "That seems like a lot of work."
It’s even more complicated for those using crypto platforms like Polymarket through VPNs because these sites usually don’t give tax documents. Polymarket users in the US may find themselves in a legal grey zone without clear reporting tools.
Gambling Tax Changes Add Another Layer of Complexity
At the same time, tax changes affecting gambling could have ripple effects on prediction market users who report wins as gambling income.
Starting 2026, a rule change means gamblers can only deduct 90% of their losses against winnings. That might sound small, but for professional gamblers operating on thin margins, it’s a major hit.
That said, chris Dierkes, a professional gambler, warns the new rule could force him out of the industry entirely. Imagine winning $100,000 but losing $100,000 — under old rules, you’d owe no tax. Under the new system, you can only deduct $90,000 of losses, leaving $10,000 taxable "phantom income" on money you never actually made.
The impact depends on how "sessions" are defined for tax purposes. If each individual bet is a session, the tax burden balloons. For poker players or those involved in tournaments, That could be devastating, possibly killing off entire parts of the gambling world.
"It’s very damaging to poker," warns an anonymous pro gambler. "It effectively kills poker if players are reporting correctly." Dierkes is even more blunt: "I could see the high-roller tournament scene die in 2026." While these changes target traditional gambling, prediction market traders who report their earnings as gambling might get caught in the crossfire.
What This Means for Australian Users
While the sources focus on US tax law, the rise of prediction markets is global. Australians tapping into these platforms or similar ones face their own challenges.
The Australian Taxation Office hasn’t published comprehensive guidelines on how to declare prediction market earnings either. Given the similarities to gambling and investment income, users may need to declare profits under wagering or capital gains rules, depending on their activity. But with so much ambiguity, many will rely on accountants to navigate the mess.
While prediction markets might look like an easy way to make money, dealing with taxes is far from simple. Without clearer rules, users risk underreporting and potential penalties. It’s a minefield that’s only getting bigger as these markets grow.
Platforms themselves could help by providing clearer tax documents and guidance. So far, that’s been spotty at best, especially on crypto-based sites.
Right now, anyone earning from prediction markets should keep detailed records and talk to a tax expert who knows digital assets and gambling laws. The alternative is flying blind — and that’s a risk few are willing to take.
Related Articles
- Nvidia-linked data centre seeks $4.54bn via junk bonds
- Kenneth Kelly, First Independence CEO, elected chair of American Bankers Association
- Gallup: US full-time workers now average 1.2 fewer hours a week since 2019
With taxes on prediction market winnings stuck in limbo, users face a tough choice: guess how to report or risk trouble down the track. Until tax authorities catch up, the growing popularity of these markets might bring more headaches than profits.
This article was created with AI assistance.
