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NJ-licensed CPA for Kalshi, Polymarket, and Robinhood event contract traders. Covers position classification, return preparation, Form 8275 disclosure, FBAR/FATCA compliance, and NJ-specific optimization.
For a comprehensive educational guide covering Section 1256, gambling classification, capital gains treatment, and NJ rules, read the complete prediction market tax guide.
Unlike stock trading, where broker Form 1099-B reporting is mature, and digital asset trading, where Form 1099-DA reporting now applies to U.S. digital asset brokers for covered sales and dispositions, prediction market platforms do not provide a uniform complete tax form for event contract activity.
Kalshisays users who hit IRS reporting thresholds may receive documentation such as Form 1099-INT for interest, Form 1099-MISC for credits or rewards, and other forms for non-event-contract activity. Kalshi also provides P&L information intended to assist members, but it does not decide the tax character of the event-contract trades for you.
Robinhoodexplicitly states "Robinhood will not be providing 1099s for event contract trades." Robinhood provides an Event Contracts Annual Statement summarizing trades, but labels it "not a substitute tax reporting form."
Polymarket records may involve non-U.S., on-chain, or newer U.S. platform activity depending on when and where you traded. Do not assume a U.S. information return will be issued. Preserve wallet records, platform exports, deposits, withdrawals, and USDC conversion history.
This places the calculation and reporting burden on you. Lack of a 1099 does not change the obligation to report taxable income, gains, losses, and deductible fees. Self-reporting is not optional.
This service covers prediction market traders across all major platforms. Whether the gains are $500 or $500,000, the classification question affects the tax bill. You can also use the S-Corp savings calculator and crypto tax estimator alongside this service.
Kalshi is a CFTC Designated Contract Market, which is relevant to the tax analysis but does not automatically resolve Section 1256 treatment. The key questions are contract terms, exchange and clearing mechanics, whether a statutory exclusion applies, and how much disclosure is appropriate.
Robinhood event-contract users receive an Event Contracts Annual Statement rather than a substitute tax reporting form for event contracts. The statement can be useful, but traders still need to reconcile closed positions, fees, and classification choices on the tax return.
Polymarket users may have non-U.S., on-chain, or newer U.S.-regulated platform records depending on when and where they traded. Do not assume a U.S. information return will exist. Crypto conversions, wallet transfers, and possible FBAR/FATCA exposure need separate review.
PredictIt traders should preserve platform statements, fee records, and withdrawal history. Political event contracts raise the same unresolved federal classification questions, while platform fees and netting mechanics can change the actual taxable result.
The OBBBA's 90% federal wagering-loss cap makes classification especially important for high-volume bettors. Moving from a sportsbook to an event-contract platform does not by itself avoid gambling treatment; contract structure, facts, and reporting position matter.
Each platform has different regulatory status, fee records, and tax documentation. Verify current account statements before filing because availability, fees, and reporting practices can change quickly.
| Kalshi | Robinhood | Polymarket Intl | Polymarket US | PredictIt | |
|---|---|---|---|---|---|
| Regulator | CFTC DCM | CFTC FCM/event-contract access through regulated futures infrastructure | Non-U.S. or on-chain platform activity may apply depending on access path | U.S.-regulated rollout or successor platform; verify current account status | Event-contract platform; verify current regulatory status |
| 1099 issued | Tax documents and P&L tools may be available; verify event-contract coverage | Event Contracts Annual Statement; not a substitute tax reporting form | Do not assume U.S. tax forms | Verify in account tax center | Verify platform forms and statements |
| Fees | Platform-specific; preserve fee history and exports | Platform-specific; reconcile annual statement and exports | Platform-specific; preserve on-chain and platform fee records | Verify current fee schedule | Verify current fee schedule |
| US access | Availability changes by state and contract type | Availability changes by state and contract type | U.S. access may be restricted | Verify current account availability | Verify current account availability |
| Market mix | Changes over time | Changes over time | Changes over time | Changes over time | Changes over time |
Platform access, fee schedules, information-reporting practices, and market mix change quickly. This table is a filing checklist, not a current market-statistics feed. Reviewed April 30, 2026.
The IRS has not clarified the correct classification for prediction-market event contracts. Each approach below has different tax consequences and risk profiles. The right choice depends on your specific contracts, trading volume, records, state of residence, and risk tolerance.
If Section 1256 applies, gains and losses receive 60% long-term / 40% short-term capital gains treatment regardless of holding period and are reported on Form 6781. That result is not automatic for every event contract.
Illustrative tax math: A trader with $50,000 in gains may owe less federal tax if valid Section 1256 treatment applies than if the full amount is ordinary income. The actual result depends on brackets, state tax, NIIT, losses, and whether the position is supportable.
Why it may apply: Some event contracts trade on CFTC-regulated infrastructure, and Section 1256 can apply to certain regulated futures contracts, non-equity options, and other listed categories. Section 1256 losses may be eligible for special carryback rules, and wash sale rules generally do not apply to Section 1256 contracts because of the mark-to-market system.
Critical weakness: Event contracts do not map cleanly onto older Section 1256 categories. IRC Section 1256(b)(2)(B), added by Dodd-Frank, excludes certain swaps and similar agreements from Section 1256 treatment. Some binary event contracts may also lack features associated with regulated futures contracts, such as daily variation margin. These are classification issues, not mere form-entry issues.
IRS pattern:The IRS consistently construes Section 1256 categories narrowly. IRS Notice 2007-71 held that OTC foreign currency options are not "foreign currency contracts" under Section 1256(g)(2). The Tax Court in Summitt v. Commissioner (134 T.C. 248, 2010) similarly held OTC foreign currency options outside Section 1256. When the Sixth Circuit disagreed in Wright v. Commissioner (809 F.3d 877, 6th Cir. 2016), the IRS responded by issuing proposed regulations to codify its restrictive interpretation. Form 8275 may be appropriate for a material, non-obvious Section 1256 position, but disclosure does not guarantee penalty protection or make an unsupported position valid.
Binary outcomes on real-world events can resemble wagering. Some state regulators have challenged sports event contracts under gambling laws, while exchanges and brokers generally describe the products as CFTC-regulated event contracts. Under a wagering treatment, winnings are taxed at ordinary income rates.
The 90% cap: The OBBBA amended Section 165(d) to cap gambling loss deductions at 90% for 2026 tax years. This creates phantom income for break-even traders. For example, $20,000 in wins and $20,000 in losses means only $18,000 is deductible, leaving $2,000 in taxable income on zero actual profit.
Professional gambler status: Under Commissioner v. Groetzinger(480 U.S. 23, 1987), full-time gambling pursued with regularity to produce income for a livelihood can constitute a "trade or business." Professional status allows Schedule C reporting with business expense deductions, but triggers self-employment tax (15.3%). The courts also apply the nine-factor test from Treas. Reg. Section 1.183-2(b). No case has applied Groetzinger to prediction market trading.
NJ note: NJ reports net gambling winnings and allows documented gambling losses to offset gambling winnings, but not below zero or against other categories of income. The 90% cap is a federal rule only. Amateur gamblers report on Schedule 1; professionals may file Schedule C when the facts support trade or business status.
Report prediction market gains as miscellaneous ordinary income on Schedule 1 (other income) or Schedule C (if you are in the business of trading). This approach does not require taking a position on whether prediction markets are derivatives, gambling, or capital assets.
Why it is conservative: Reporting net income as ordinary income may be easier to defend than taking a preferential or highly technical position. It still requires accurate netting, fee treatment, and records. You may be able to amend within the refund statute if the IRS later clarifies a more favorable treatment.
Who it suits: Traders who prefer lower classification risk over optimization. Traders with small to moderate net gains. Anyone not confident in defending a more aggressive position.
High-volume traders who qualify as being in the "trade or business" of trading commodities may consider a Section 475(f)(2) election. This converts all gains and losses to ordinary treatment for eligible positions and may reduce capital loss limitation issues. Election timing is technical and generally must be addressed before the year at issue. This is untested for prediction markets and depends on whether the trader and contract facts fit Section 475. The taxpayer must independently meet trader-status requirements; sporadic activity is not enough.
Event markets can be voided, corrected, settled under special rules, or partially reimbursed by a platform. Those facts matter. The tax analysis should start with what actually happened to your cash, tokens, fees, and contract position, not with the headline around the market.
A true refund or cancellation generally produces no gain or loss if you simply get back the amount you paid. A resale, cash settlement, platform credit, bonus, reimbursement, or fee waiver may produce income, capital gain or loss, or a basis adjustment depending on the terms and documentation.
Keep the contract rules, settlement notice, transaction export, wallet history, and any support messages showing why the platform adjusted the market. Those records are what let a preparer distinguish a non-taxable return of capital from taxable income or a reportable disposition.
Sports event contracts and other prediction markets are being contested by regulators, exchanges, brokers, and states. Those disputes can affect whether a product is available in a state, but they do not automatically decide how the IRS will classify your income.
CFTC-regulated status can support some tax arguments, but it does not by itself establish Section 1256 treatment, capital treatment, or non-gambling treatment for federal income-tax purposes.
State cease-and-desist letters, geofencing, or gaming-law disputes may affect where you can trade. They do not remove federal reporting duties for trades that already occurred.
The tax return still needs a classification position. A state gaming regulator's view, a broker's product description, or a court's preliminary ruling may inform the analysis, but none is a direct IRS ruling on your return.
Keep account statements, contract specs, fees, settlement notices, and support messages. If regulators or platforms later change a product's status, you still need records showing what happened during your tax year.
This page avoids predicting litigation outcomes. For tax filing, the safer approach is to document the position taken, preserve records, and update the analysis if the IRS, Treasury, Congress, or courts issue binding guidance.
NJ has not issued specific guidance on prediction market taxation. However, NJ's existing tax structure creates both advantages and traps for prediction market traders.
NJ reports net gambling winnings and allows documented gambling losses to offset gambling winnings, but not below zero or against other NJ income. The federal 90% cap does not apply to your NJ return.
NJ taxes all capital gains at ordinary income rates (1.4% to 10.75%). There is no preferential long-term capital gains rate in NJ.
NJ may not recognize Section 1256 treatment for state purposes. If you use the 60/40 split federally, NJ could tax the full gain at ordinary rates.
NJ has not issued prediction-market income-tax guidance as of April 30, 2026. Do not assume NJ will follow a federal Section 1256 or platform classification position without analysis.
The NJ Trap (Example)
Illustration only: if a NJ resident has a $10,000 Kalshi gain and takes a federal Section 1256 position, federal tax depends on that taxpayer's actual long-term and short-term rates. NJ may still tax the full gain at ordinary gross-income-tax rates with no preferential long-term capital-gain rate. Compared with a no-income-tax state, the added NJ cost depends on the taxpayer's NJ bracket and other income.
If you traded on a non-U.S. prediction-market platform or held value through an offshore or on-chain arrangement, you may have foreign account or foreign asset reporting obligations.
Required if the aggregate value of your foreign financial accounts exceeded $10,000 at any point during the year. Filed separately from your tax return (due April 15 with automatic extension to October 15). Penalties: up to $10,000 per report for nonwillful violations per Bittner v. United States (598 U.S., 2023). Willful penalties: the greater of $100,000 or 50% of account balance.
Required if specified foreign financial assets exceed the applicable filing threshold. The $50,000 year-end / $75,000 any-time threshold is the common single U.S. resident threshold, but higher thresholds can apply for joint filers and taxpayers living abroad. Filed with your tax return. Section 6038D(b)(2)(C) includes certain financial instruments or contracts with non-U.S. counterparties, so prediction-market positions should be reviewed rather than ignored.
Whether DeFi smart contract wallets constitute "foreign financial accounts" under 31 CFR 1010.350 is unresolved. FinCEN Notice 2020-2 stated virtual currency accounts are not currently reportable on FBAR, but announced intent to propose amendments. No final rule has been published as of April 30, 2026. When uncertain, review the facts before deciding whether to file.
Note: Accessing restricted platforms may violate their terms of service. This does not change your tax or reporting obligations.
Automated tools like PredictionTax (predictiontaxes.com) and PolyTax (polymarket.tax, $99) exist for calculating prediction market P&L and generating tax forms. These tools can help you organize your trading data and compute gains and losses.
What they cannot do: tell you which classification position is most defensible for your specific situation, analyze how your NJ return interacts with your federal position, prepare Form 8275 disclosure documentation, evaluate FBAR/FATCA obligations, or represent you if the IRS questions your return. Those tasks require professional tax preparation.
Prediction market tax preparation, planning, and compliance services from a NJ-licensed CPA (CPA #20CC04711400).
Federal and NJ tax returns with prediction market income classified and reported based on your facts, platform records, and risk tolerance. I evaluate Section 1256, capital gain or loss, gambling, and ordinary-income approaches instead of assuming one answer fits every trader.
Written analysis evaluating which tax treatment is most defensible given your trading volume, platforms used, contract terms, and state of residence. Includes IRC citations, relevant authorities, and risk assessment.
Disclosure-statement preparation for taxpayers taking a non-obvious or material position, such as Section 1256 treatment. Form 8275 can help document the position and support penalty-defense analysis, but it is not blanket protection and does not make an unsupported position valid.
FinCEN 114 and Form 8938 screening for non-U.S. prediction-market platform exposure. Accounts, wallets, and contractual positions must be evaluated against reporting thresholds instead of assuming every offshore or on-chain position is reportable.
NJ taxes capital gains at ordinary rates with no preferential long-term rate. If prediction-market activity is treated as gambling, NJ reports net gambling winnings and has not adopted the federal 90% wagering-loss cap. The federal-state interaction can materially change the result.
Ongoing tax planning for active prediction market traders. Estimated tax payment calculations, mid-year projections, and monitoring of IRS or CFTC guidance that could change the analysis. Includes Section 475(f)(2) mark-to-market review where the trader and contract facts make that discussion appropriate.
Have immediate questions? Try SAM (the tax chatbot) or HASH (the crypto tax chatbot) for quick answers while you decide.
In-depth articles covering the tax rules prediction market traders should know.
Candidate tax treatments, platform-specific notes for Kalshi, Polymarket, and Robinhood, NJ traps, and filing steps.
Read guideTax implications of disputed markets, platform refunds, offshore gains, on-chain records, and FBAR/FATCA screening.
Read guideHow the OBBBA changed Section 165(d), what phantom income means, and how prediction market traders may be affected.
Read guideNJ netting rules, withholding rates, and how NJ differs from federal. Critical for NJ prediction market traders choosing the gambling classification.
Read guideFor traders who bet on both traditional sportsbooks and prediction markets. Covers the interaction between the 90% cap and platform migration.
Read guideFull gambling and sports betting tax service page. W-2G reconciliation, NJ netting, professional gambler status analysis, and phantom income planning.
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The IRS has not clarified the rules, and every platform handles reporting differently. I'll analyze your situation, recommend the most defensible tax position, prepare your federal and NJ returns, and file Form 8275 if needed.
For a detailed walkthrough of the main classification approaches, platform-specific notes, and NJ traps, read the full prediction market tax guide.
Gregory Monaco, CPA LLC d/b/a Monaco CPA · NJ CPA Firm License #20CB00789800 · Personal License #20CC04711400
Livingston, NJ 07039 · (862) 320-9554 · taxhelp@MonacoCPA.CPA
Prediction market tax services are provided remotely to clients in New Jersey and other states where permitted. This page is for informational purposes only and does not constitute tax advice. Use of this website does not create a CPA-client relationship.
Tax advice disclaimer: This material is for general educational information only and is not legal, tax, or accounting advice for your specific facts. A CPA-client relationship is formed only through a signed engagement letter.