Prediction Market Taxes and Record-Keeping: What to Save, and Why the Rules Are Unsettled

Prediction market taxes do not have a single, universal answer. The treatment depends on where you live, how the venue is regulated, what kind of contract you traded and whether the tax authority sees the activity as gambling, derivatives trading or something else. What you can control is the record you keep. That record determines whether you can prove your gains, deduct your losses and survive an audit.

This article is not tax advice. It is a guide to the data to preserve and the questions to ask a local professional before filing.

Why platform profit-and-loss is not enough

Many venues offer a profit-and-loss statement, and traders often assume it is a tax document. It usually is not. A PnL figure may include unrealized positions, exclude fees or rebates, use a particular accounting method, or treat a redemption differently from a sale. It is a useful reconciliation tool, not a filing.

Kalshi's help center is unusually explicit. It says users who meet IRS thresholds may receive a 1099-INT for interest, a 1099-MISC for credits and rewards, a 1099-B for proceeds from crypto transfers, and a 1099-DA for digital asset reporting. It does not say that any of those forms reports event-contract profit and loss. Kalshi instead offers a PnL statement that includes fees and rebates and uses FIFO accounting, and it states that the information is not tax advice.Kalshi

That gap is the core record-keeping problem. You may owe tax on event-contract gains even when the forms you receive do not add up to your trading PnL. The IRS's general rule for gambling winnings is that they are fully taxable and must be reported, including winnings not reported on a Form W-2G. Losses are deductible only if you itemize, and only up to the amount of gambling income you report. To deduct them, the IRS says you must keep an accurate diary or similar record and be able to provide receipts, tickets, statements or other records showing both winnings and losses.IRS Topic 419

Whether event contracts are "gambling" for US tax purposes is a separate question. The CFTC describes event contracts as typically structured as swaps, which are derivatives.CFTC explainer A tax authority may treat a swap differently from a sports wager. The practical lesson is not to assume the sportsbook rules apply, and not to assume they do not. Ask before you file.

What to save

The goal is a trade-level ledger that reconciles to cash. For every transaction, record:

• The date and time, preferably in UTC.
• The market or event identifier and slug, plus the outcome you bought or sold.
• The side, price, number of shares and any fees.
• The trade ID, order ID or transaction hash.
• The cash paid or received, including deposits, withdrawals and transfers.
• For a sale or redemption, the proceeds and the cost basis of the shares.
• For a resolution, the final outcome, the resolution date and the source.

Also save what is easy to forget:

• Splits, merges and negative-risk conversions, which change positions without a simple buy or sell.
• Rewards, rebates and referral payments, which may be taxable income even if they are not trading gains.
• Market rules and any "Additional context" clarification, because the resolution determines the tax event.
• Monthly account statements and the raw CSV exports, not just your summary spreadsheet.

Polymarket's US reporting documentation shows the shape of a good dataset. It offers trade and order searches, position and fee reports, and CSV exports for the position ledger and cash balance ledger. It recommends querying incrementally, archiving older data locally, and reconciling with trade IDs and execution IDs rather than timestamps. It also notes that the historical floor for some ledger data is May 1, 2026, so earlier data may not be retrievable.Polymarket US reporting

That last point is a warning: do not wait until tax season to export. Data retention, API changes and account closures can all remove access. Export monthly, keep the raw files, and store them outside the platform.

A simple example of why fees matter

Suppose you buy 100 shares at 40 cents, paying $40 plus a $1 fee. You later sell at 55 cents, receiving $55 minus a $1 fee. Your gross gain looks like $15. Your net gain is $13.

If you record only the gross proceeds and the purchase price, you overstate the gain by $2. If you hold to resolution instead, you might receive $100 for the winning shares against a $41 all-in cost, a $59 gain. That redemption is a different kind of event from a sale, and it should be recorded separately so your accountant can classify it correctly.

The same logic applies to a losing position. The loss is not just the purchase price; it includes the entry fee. A ledger that ignores fees systematically overstates both gains and losses.

Jurisdiction differences

In the United States, the starting point for a casual gambler is the IRS rule above: winnings are taxable, losses are itemized and capped at winnings, and records are required. For derivatives, the rules can differ on timing, character and reporting. There is no universal event-contract rule that fits every venue, so the right answer depends on the contract and the account.

In the United Kingdom, the Gambling Commission states that winnings from gambling for customers are tax-free, regardless of the amount won, and that tax is levied on operators' gross gambling yield.UK Gambling Commission That is a clear statement for licensed gambling. It does not automatically answer how an offshore prediction market, a crypto-denominated contract or a professional trading operation is treated. The source of the winnings and the nature of the activity still matter.

Other jurisdictions vary widely. Some tax gambling winnings as ordinary income, some exempt them, and some treat frequent trading as a business. Crypto-denominated venues can add another layer: converting tokens, receiving rewards or moving funds between wallets may create a separate taxable event even if the prediction itself is not taxable.

The safe approach is to ask three questions of a local adviser. Is this activity gambling, trading or a derivative? When is the gain realized: at sale, at resolution, or at settlement of the underlying? And what records does the local authority require to support a loss?

A record-keeping routine

1. Export trade history monthly. Do not rely on the platform to keep it forever.

1. Store the raw CSV and a normalized ledger. The raw file is the evidence; the ledger is for analysis.

1. Use trade IDs or transaction hashes as the unique key. Reconcile deposits, withdrawals and transfers separately from trading gains.

1. Snapshot the market rules and the final resolution. A tax file that says "won" without the source and date is weaker than one that shows why.

1. Track fees and rebates in separate columns. They affect both your PnL and, potentially, your reporting.

1. Reconcile the platform's PnL to your ledger every quarter. Investigate any difference rather than picking the number you prefer.

1. Back up the files in two places. A spreadsheet on the same laptop as your wallet is not a backup.

Common mistakes

The most common is recording only wins. A ledger that shows only profitable trades is not credible when the platform and public records show deposits and withdrawals.

The second is ignoring fees and rewards. Fees reduce gains and increase losses; rewards may be income. Both belong in the record.

The third is treating an open position as realized. An unrealized gain is not cash, and a position can still go to zero.

The fourth is missing transfers between wallets or accounts. A transfer is not income, but a ledger that cannot distinguish it from a deposit will look wrong.

The fifth is relying on platform PnL as the final number. It is a starting point for reconciliation, not a substitute for your own records.

The limits

Tax law is jurisdiction-specific and changes. Platform help pages are not tax advice, and a 1099 is not a guarantee that your reporting is complete. The CFTC's framework tells you what an event contract is; it does not tell you how your country will tax it.

Keep the records, ask a professional, and do not assume no form means no obligation.