how about you file taxes for the profit of the forecast market? It seems like the kind of straightforward question any accountant should be able to answer. Right now, though, it’s a conundrum for tax experts across the country. “You have a manual vacuum,” says Patrick Camuso, an accountant who specializes in digital assets. “It puts the taxpayer at a disadvantage.”
Prediction markets have been around for decades, so this is not a new issue. But platforms like Kalshi and Polymarket have exploded in popularity since last year, which means that the question of how to properly calculate the profits of the prediction market has moved from a niche concern to something more urgent for many people. Although only a small part of people use the market – about 3 percent, according to a recent opinion poll-that still means millions of US residents are required to report their winnings and losses to the Internal Revenue Service. There is a lot of money to play here. Kalshi, which has many US users, noticed more than 12 billion dollars at the monthly trading level this past March, according to market tracker Defi Rate.
Kalshi declined to comment. The IRS and Polymarket did not respond to requests for comment.
The IRS has not issued official guidelines on how to approach prediction markets, which means that people who used these systems now have to shuffle their way through tax season hoping they don’t inadvertently break the law. There are several possible ways to report wins and losses; some people use the law governing tax reporting on financial derivatives (such as futures contracts and foreign exchange contracts). Others treat their prediction market profits as if they had won a bet or simply report them as ordinary income and cross their fingers. Capuso describes the prediction markets as “a combination of betting contracts, derivatives, and investments mixed together in a unique bucket” and says that he evaluates what customers owe on a case-by-case basis. “Our firm generally takes a more conservative position for many clients because of the complexity of many tax laws.”
For traders reporting the earnings of forecast markets as gambling winnings, the process can be complicated. The bettors must follow up their winnings on a “per session” basis, which means that instead of reporting the exact amount, a full record of each bet must be kept. Nate Meininger, a Phoenix forecast market trader, joked on X about how the lack of guidance means you don’t need to announce earnings. In real life, however, he says he reports profits by checking tax documents provided by platforms like Kalshi and consulting an accountant. “I don’t track myself,” he says. “That sounds like a lot of work.”
American futures traders who access Polymarket and other crypto-based platforms using private internet networks are in a very difficult place, since the company does not issue tax documents (and because they are legally prohibited from using unlicensed platforms). As US citizens are required to report income regardless of its source, traders who buy contracts on Polymarket and similar must report their own income. “Foreign exchanges are more difficult,” Meininger says.
Changes in the IRS could make things more complicated. The tax agency is in the midst of a major overhaul, and some modern efforts led by executives from what is called the Department of Government Efficiency. It currently follows advanced strategies to determine which taxpayers to audit; last year, the IRS Paid Palantir $1.8 million to improve a special tool designed to report “high-value” audit cases, as WIRED recently reported.
