No one knows how to file taxes on predicting market wins

How are you File tax on market profits prediction? This seems to be the kind of straightforward question that any respectable accountant should be able to answer. Right now, this is a dilemma for tax experts across the country. “You have a guidance vacuum,” says Patrick Camusso, an accountant who specializes in digital assets. “It puts taxpayers at a disadvantage.”

Prediction markets have been around for decades, so this is not a new problem. But platforms like Kalshi and Polymarket have soared in popularity since last year, which means that the question of how to correctly calculate expected market gains has gone from a specialist concern to something more pressing for many people. While only a small segment of the population actually uses the markets — about 3 percent, according to a recent poll — this still means that millions of US residents are required to report their gains and losses to the Internal Revenue Service. There is big money at play here. Calcci, which has a predominantly American user base, saw more than $12 billion in monthly trade volume last March, according to market tracker Defi Rate.

Kalci declined to comment. The IRS and Polymarket did not respond to requests for comment.

The IRS has not issued official guidance on how to handle prediction markets, which means people who have used these platforms now have to navigate their way through tax season and hope they don’t inadvertently break the law. There are several possible ways to report gains and losses; Some people apply a law governing tax reporting to financial derivatives (such as futures and foreign exchange contracts). Others treat their expected market gains as if they were gambling their profits or simply report it as regular income and cross their fingers. Capuso describes prediction markets as “a combination of bets, derivatives and investment contracts all rolled together in a unique bucket,” and says he evaluates what clients owe on a case-by-case basis. “Our firm generally takes a more conservative stance for most clients because of the ambiguity surrounding a lot of the tax rules.”

For traders who report expected market profits as gambling profits, the process can be stressful. Bettors must track their winnings on a “per-session” basis, meaning that instead of reporting a net amount, they must keep a comprehensive record of each bet. Nate Meininger, a prediction market trader in Phoenix, joked on X about how a lack of guidance means you don’t have to declare income. However, in real life, he says he makes money by looking at tax documents provided by platforms like Calci and consulting with an accountant. “I don’t track it myself,” he says. “This seems like a lot of work.”

US prediction market traders who access Polymarket and other cryptocurrency-based platforms using VPNs are in a particularly difficult position, since the company does not issue tax documents (and because they are legally prohibited from using unlicensed platforms). Since US citizens are required to report income regardless of its source, traders who buy contracts on Polymarket and its ilk must report their profits themselves. “Foreign exchanges are more difficult,” Menninger says.

Changes at the IRS may make things more difficult. The tax agency is in the middle of an overhaul, with some modernization efforts led by agents from the so-called Government Efficiency Administration. It is currently pursuing more sophisticated strategies to determine which taxpayers need to be audited; Last year, the IRS paid Palantir $1.8 million to improve a custom tool designed to flag “high-value” audit cases, as WIRED recently reported.