How to File Prediction Market Taxes: Kalshi 1099s, Polymarket, and IRS Rules

Tax season brings a flood of questions from prediction market traders. Kalshi sends 1099 forms, but Polymarket doesn't—and the IRS hasn't published specific guidance for prediction market income. Here's a practical guide to filing your taxes correctly for both platforms.

Filing Kalshi taxes

Kalshi is the easier platform to handle because it reports to the IRS directly:

• Form 1099: If you earned $600+ in net gains, Kalshi sends you a 1099-B or 1099-MISC.
• What's reported: Your total proceeds, cost basis, and net gains/losses for the tax year.
• Your job: Report the amounts from your 1099 on your tax return, typically on Schedule D (capital gains) or Schedule C if you're a professional trader.

Step-by-step for Kalshi

1. Download your 1099 from your Kalshi account (available in January/February).
2. Enter the totals on Schedule D of your 1040.
3. Short-term gains (contracts held under 1 year) go on Part I.
4. Long-term gains (contracts held over 1 year, rare on Kalshi) go on Part II.
5. Net the gains and losses. Losses offset gains dollar-for-dollar.
6. Excess losses up to $3,000 can offset ordinary income.

Filing Polymarket taxes

Polymarket is harder because it's a crypto-native platform that doesn't send 1099s to the IRS:

• No 1099: Polymarket does not report to the IRS. You are responsible for self-reporting.
• USDC transactions: Every trade is a taxable event. Buying a contract with USDC and selling or resolving it creates a gain or loss.
• On-chain records: All your transactions are on the Polygon blockchain. Use a crypto tax tool to export them.

Step-by-step for Polymarket

1. Export your transaction history from Polymarket or pull it from Polygonscan using your wallet address.
2. Use a crypto tax tool (Koinly, CoinTracker, TokenTax) to calculate gains and losses.
3. Each contract purchase is a cost basis. Each sale or resolution is a disposal event.
4. Report the net result on Schedule D, just like Kalshi.
5. Don't forget the USDC on-ramp/off-ramp—converting USD to USDC and back may also be taxable if there's a gain.

How prediction market profits are taxed

The IRS hasn't issued specific guidance, but here's the prevailing treatment:

• Short-term capital gains: Most prediction market contracts resolve in days or weeks. Gains are taxed at your ordinary income rate (10-37%).
• Long-term capital gains: If you somehow hold a contract over 1 year, the preferential 0/15/20% rates apply. This is rare.
• Losses are deductible: Net capital losses offset gains. Up to $3,000 in excess losses offset ordinary income per year.
• Wash sale rules: It's unclear if wash sale rules apply to prediction market contracts. Consult a tax professional.

Record-keeping essentials

• Download everything: Export CSVs from Kalshi. Pull Polymarket data from the blockchain.
• Track per-trade: Date purchased, cost, date sold/resolved, proceeds.
• Save 1099s: Keep all forms Kalshi sends you.
• Track fees: Trading fees are added to your cost basis, reducing taxable gains.
• Separate platforms: Keep Kalshi and Polymarket records separate for clarity.

Common tax mistakes to avoid

• Not reporting Polymarket: Just because no 1099 is sent doesn't mean it's not taxable. The IRS can see blockchain transactions.
• Forgetting losing trades: Losses are valuable deductions. Track all trades, not just winners.
• Double-counting: If Kalshi reports gross proceeds and you also calculate manually, make sure you don't report twice.
• Ignoring USDC conversions: Converting USD → USDC → USD can create small taxable events if USDC price fluctuated.
• Mixing platforms: Keep Kalshi (regulated, 1099-reported) and Polymarket (crypto, self-reported) separate in your filing.

When to hire a tax professional

Consider professional help if:

• You traded on both Kalshi and Polymarket with significant volume
• You have complex crypto transactions (bridging, swaps, DeFi)
• You want to explore Section 1256 treatment for favorable rates
• You're a high-volume trader who might qualify for trader tax status
• You're unsure about wash sale rules or cost basis methods

Track your trading with Alphascope

Alphascope helps you make better trades—and better records for tax time:

• Predictions → See all your potential markets in one place across Kalshi and Polymarket.
• News → Understand why markets moved—useful context for tax records.

FAQ

Does Polymarket send a 1099?

No. Polymarket does not report to the IRS. You must self-report all gains and losses using blockchain transaction records.

Are prediction market losses tax-deductible?

Yes. Capital losses from prediction markets offset capital gains. Up to $3,000 in net losses can also offset ordinary income each year.

What tax software works for prediction markets?

For Kalshi, any standard tax software (TurboTax, H&R Block) handles the 1099. For Polymarket, use a crypto tax tool like Koinly or CoinTracker to generate your Schedule D.