How do you file taxes on prediction market profits? A straightforward question for most, a baffling one for many bookkeepers. “You have a vacuum of guidance,” says Patrick Camuso, an accountant who specializes in digital assets.
Prediction markets, which allow users to bet on future events, have exploded in popularity since last year, with platforms like Kalshi and Polymarket seeing massive gains. Millions of US residents are now obligated to report their wins and losses, but the IRS has yet to issue clear guidelines. This leaves many traders grappling with ambiguity.
To add to the confusion, only a small percentage of the population uses these markets—around 3 percent according to recent polls—but Kalshi saw over $12 billion in monthly trade volume last March, showcasing just how significant this sector has become.
Traders are forced to navigate various reporting methods, from treating their gains as gambling winnings to reporting them as regular income. The lack of clarity means that many traders are left unsure and potentially at risk of breaking the law during tax season.
