It's time for American to pay taxes on prediction market winnings, but no one knows how.
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It’s Tax Day, and no one knows how to file for prediction market winnings
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Given how incredibly fast my federal refund was processed this year (a single calendar week, and I didn't file until a month ago)...I'm guessing between DOGE insanity, coupled with the exodus of veterans due to the "resignation program"--IRS is just rubber stamping filing without any kind of due diligence.
Whatever people who gamble on "prediction markets" do with their filings--no one is going to audit them for at least another 2 years at a minimum. The foxes, who are chairmen on the boards of chicken mcnugget factories, are "guarding" the hen house
Whatever people who gamble on "prediction markets" do with their filings--no one is going to audit them for at least another 2 years at a minimum. The foxes, who are chairmen on the boards of chicken mcnugget factories, are "guarding" the hen house
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Suggestion: Trump Administration officials should report their "prediction market" earnings as illegal income.
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Please classify as gambling so that these markets can be treated as gambling establishments as they should be.
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Well, it seems to me, you'll never go to jail and have to pay back taxes and penalties for overpaying taxes, right? So the safest course of action is to treat it as the highest type of income the IRS might declare it is (probably normal income taxes) as opposed to something with a lower tax rate, like capital gains.
If the IRS later clarifies it was capital gains, you could amend your tax return and get a refund, right?
But if you go the other way around, choose the "cheapest" option where you pay the lowest tax, then you might be told you didn't pay your taxes in time and are facing needing to pay them a bunch of money you may have already gambled with again and lost or otherwise spent and now you gotta come up with a bunch of money to pay back taxes AND penalties, and on top of that you might be facing jail time.
Although, we ARE talking about gamblers here, so as a cohort, their natural inclination will be to gamble that they can either not pay taxes at all (it doesn't seem like the Trump admin is enforcing taxes, right?), or pay the lowest conceivable tax rate.
Those gamblers should give some thought to the possibility that in less than 3 years, there could be a new President, and I think the statute of limitations on tax evasion is 7 years?
If the IRS later clarifies it was capital gains, you could amend your tax return and get a refund, right?
But if you go the other way around, choose the "cheapest" option where you pay the lowest tax, then you might be told you didn't pay your taxes in time and are facing needing to pay them a bunch of money you may have already gambled with again and lost or otherwise spent and now you gotta come up with a bunch of money to pay back taxes AND penalties, and on top of that you might be facing jail time.
Although, we ARE talking about gamblers here, so as a cohort, their natural inclination will be to gamble that they can either not pay taxes at all (it doesn't seem like the Trump admin is enforcing taxes, right?), or pay the lowest conceivable tax rate.
Those gamblers should give some thought to the possibility that in less than 3 years, there could be a new President, and I think the statute of limitations on tax evasion is 7 years?
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Is this common knowledge? I had no idea. I know a few gamblers and none of them take notes.
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DeathOfTime
Wise, Aged Ars Veteran
doesn't sound all that complicated of a tool to write. just have it spit out the names of anyone with enough money to hire a lawyer, but not enough to hire a good lawyer. that has statements with clear errors
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It just occurred to me there might be one other complication regarding taxes. . . If someone made lots of bets, err, futures contracts investments, are they able to reduce their wins by their losses? What if they created a corp to place the bets for them? Corps get to offset profits by losses, right?
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MilanKraft
Ars Tribunus Angusticlavius
Disclaimer: the following tax advice is not given by a tax professional; you should probably ignore it. Maybe.
Given the administration's proclivities for diverting badly needed funds from important things and re-directing to often questionable things, I believe there are two pieces of advice every predictions markets gambler should be given:
Given the administration's proclivities for diverting badly needed funds from important things and re-directing to often questionable things, I believe there are two pieces of advice every predictions markets gambler should be given:
- To the extent there is no indication a tax form detailing the full extent of your winnings was sent to the IRS, you shouldn't include them in your tax owed calculations.
- Stop supporting prediction markets in their current, twisted form — our society is fucked up enough without having millions of people wagering on things that shouldn't be wagered on, in ways that can negatively impact a lot of real human beings.
Thank you, have a pleasant day.
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"It is currently pursuing more sophisticated strategies to identify which taxpayers to audit;"
1) as few as possible. 2) not rich people.
1) as few as possible. 2) not rich people.
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That might be a problem for a poker or blackjack game. Not for prediction markets - those are all tracked digitally anyhow, by their very nature, right?
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I can't read the link, but maybe it only applies to 'professional' gamblers who win consistently.
[EDIT: apparently not - according to the IRS link upthread all gamblers must report their winnings. Here in Ireland you don't have to unless it becomes a profession.]
[By 'don't have to' I mean 'aren't required to'. I assume that in the US reporting is rather less than universal still...]
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I also had a quick turnaround with my federal return and had similar thoughts about a rubber stamped approval. I bought a house last year and expected big tax reporting changes for me, so I wondered if something was amiss and asked a tax friend for review. Aside from a few immaterial corrections, he said it was good but that there is some uncertainty with vague changes in property tax law from Big
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It's not just where to enter it. Afaiu, a big part of the problem is how to account for losses.
Investment is treated basically as a "business activity." Investment losses can offset gains and you pay taxes on net income.
Gambling is treated as entertainment. With gambling losses aren't generally deductable any more than movie tickets. However winnings are taxable. That's what the but about tracking each gambling "session" is. You can count your net gambling wins, but you can't use losses against ordinary income or investment income.
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It's not that. For most people, all the IRS is doing is reconciling the information they already have from your employer, your financial institutions, state governments, and last years taxes with your tax forms, and if they don't differ by a meaningful degree, they get approved. That was what the Free Tax Filing program that was killed was doing: it was letting the IRS tell you what they already knew about you, and letting you make any changes you thought necessary.
The IRS has been spending a lot of time and money, when they've had it, to pull in data from financial institutions, because for people whose source of income is reported on a W-2 form, and who don't have any weird financial investments or anything similar, your taxes aren't complicated. The IRS knows what you owe, and how much you've paid. Even if you own individual stocks/ETFs/etc, which is relatively speaking, rare, financial institutions report to the IRS all the information required to determine how long you've held the stock and calculate profits/losses on any sales, along with the appropriate taxes incurred. It's people whose financial lives are more complicated than that that they need to investigate.
The only reason something like 80% of people have to file taxes is because Intuit and H&R Block have attached themselves onto the US citizenry like leaches. As with many things, the inefficiencies in the US system result in, and then are caused by, rent-seeking companies/individuals. And then the Republican Party seizes on the complexity of whatever system it is that they've built to convince people that government doesn't work.
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Ha.
Oh, wait, they're serious.
Do they not know that when you are in a position of power you get to do whatever the eff you want and nobody gets to question you because the questioners either disappear, go suddenly quiet, or the powers claim it was all part of the plan to give a gift that was totally in the cards in the first place so how dare you question their genius. The check will be in the mail. If the mail is running that day.
Place your
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IANYL, but it's probably even more complicated. There's some guidance which indicates that a person trading a contingent event contract (i.e., I bought the contract for $100 that could $400, but since my purchase the likelihood it'll pay has increased, so someone's willing to buy the contract from me for $200) , may have different tax liability than a person who receives income from an event contract that pays out.
The thing is, none of these are actually new questions individuals and companies have been engaging in futures contracts for decades. Those people have the CPAs and lawyers to help them justify however they've been reporting income to the IRS. The real issues are 1) how is the average taxpayer supposed to report this information and 2) how is the IRS going to treat that reporting now that it may need to review a lot more returns.
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Oh most people have extremely simple taxes and they can file 1040EZ. Them not having a look-over i get.
I'm an odd duck because...TLDR...I had a grand-uncle(?) who passed on and left a mineral-extraction royalties contract to all his grand-relations. Result being that somewhere between 60 or 100 heirs split the twice yearly royalty check (one part of the family, pumped out a lot of kids). That check is all of $50/year but causes a lot of tax paperwork filled with nothing but 0s, that were it not for tools like TurboTax (which I wish didn't even need to be a thing, gripe for another time) and I'd just surrender the royalty rights as the $50/year isn't worth the paperwork burden. I can't file 1040EZ, and even were free-file available in my state my tax situation wouldn't qualify IIRC.
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It depends. If you're gambling, you pay taxes on any profits from a session, however that's defined, but can't completely deduct losses. But if you're investing, then losses across the year offset any profits, and can be carried forward to future years. So what you call whatever it is you're doing affects your taxes, and might differ from year to year based on how well you do/how long you hold things for / etc. As with so many things tech, Kalshi et al aren't providing value to people, they're doing regulatory arbitrage and offloading risks to unknowing or knowing but powerless entities.
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chateauarusi
Ars Centurion
I live in Luxembourg, and the above is exactly how the default tax filing process works for everybody. The state already has 95+% of everything your obligation will be based on and computed from. You log on, you review, you add details and make amendments as needed, and you sign off. It's literally a 15-20 minute process. The longer I spend away from the U.S., the more insane its processes seem, not to mention how everybody just accepts them without questioning their necessity.
P.S. Somebody should use these prediction markets to create predictive-event derivatives or whatever they're called regarding whether or not these various tax-reporting practices will eventually be found to be illegal.
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Isn't the CFTC saying that Kalshi's 'bets' are actually swaps and not gambling? If the platform is registered with the CFTC, I don't see how you can argue that it's gambling winnings.
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Technically, for gambling you're supposed to report all winnings. If you win $2 on a $1 scratch ticket you're supposed to report $2 of income.
Practically, a 1099 gets filed only if you win over $2000 (increased from $1200 this year) in a single win.
The complicated part is deducting losses. For casual gamblers it's not really possible. Professional gamblers can deduct loses but it requires a lot of documentation. And no, you can't just say I bet $1 and won $2 so I have $1 income.
Practically, a 1099 gets filed only if you win over $2000 (increased from $1200 this year) in a single win.
The complicated part is deducting losses. For casual gamblers it's not really possible. Professional gamblers can deduct loses but it requires a lot of documentation. And no, you can't just say I bet $1 and won $2 so I have $1 income.
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The same way you file gambling winnings. Because it is gambling. Pretty simple.
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Oooo! Insurance contracts for prediction market derivative assets sounds like a great idea that Couldn't Possibly Go Wrong™©®I live in Luxembourg, and the above is exactly how the default tax filing process works for everybody. The state already has 95+% of everything your obligation will be based on and computed from. You log on, you review, you add details and make amendments as needed, and you sign off. It's literally a 15-20 minute process. The longer I spend away from the U.S., the more insane its processes seem, not to mention how everybody just accepts them without questioning their necessity.
P.S. Somebody should use these prediction markets to create predictive-event derivatives or whatever they're called regarding whether or not these various tax-reporting practices will eventually be found to be illegal.
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PLEASE stop using this new phrase "Prediction Markets" - this is "Gambling", plain and simple. Using some newfangled phraseology created by gambling corporations in an attempt to pretty-up their business only legitimizes what has already proven to be a brutally damaging industry.
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They would be short-term capital gains, unless you’re placing your bets more than a year in advance, which is taxed as ordinary income.
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Through 2025, documented gambling losses are deductible to the extent of winnings. Starting this year, they're deductible up to 90% of winnings. That's for people who itemize deductions.
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While these are still mostly illegal here in Canada here but there have been rumblings that these companies are trying to exploit loopholes to open Polymarket etc to Canadians. In Canada gambling winnings are not taxed, I will be reserving a large amount of schadenfreude for anyone who wins big on a "prediction market" bet and has to claim their winnings as capital gains.
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wont it be more important for most people to figure out if they can write off prediction market losses?
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Between this (which I've barely heard of like the past couple weeks) and loot boxes/blind boxes/etc. in games, I feel like we're losing our collective minds and apparently think gambling is a good past time to avoid thinking about the shit show that is reality right now. But gambling is bad so we need to come up with new words for it, either because of moral high ground issues or for lack of regulation until the laws catch up.
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Investment for US tax purpose has been limited to a subset of activities that generate capital gains (and basically nothing else). See YA Global Investments v. Commissioner, 161 T.C. 173 (2023). If you wait for an event contract to pay out (rather than selling the contract), then you are likely not engaged in "investment."
What counts as a "trade or business" varies depending on the context in which those words are used. Under section 162, investment can be a trade or business for which expenses or losses are allowed as deductions. However, under section 864(c), investment can never amount to a trade or business.
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well technically you could go to jail even if you overpaid to cover up lying on other parts of the return...
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I owed a decent bit this year and it took all of 60 seconds after filing to get the approval.
The US tax system is broken (by design).
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Idk somehow I filed a decade of returns with winnings most years from university-run/affiliated research prediction markets. Doesn't seem particularly challenging. We should probably bring back 1000/USD per person per market max bets again. I used to have family members place straw bets for me to evade that.
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