Last April I stared at a 1099-B from Kalshi and realized I had no idea what I was looking at. I'd spent months trading Fed decision contracts, racked up a decent profit, and suddenly needed to explain it all to my accountant. He'd never heard of prediction markets. I'd never thought much about how they fit into the tax code. We figured it out together, and I'm sharing what I learned so you don't have to pay someone $400 an hour to scratch their head.
Kalshi is regulated by the CFTC as a designated contract market. That matters because it determines how your gains and losses get classified. The contracts you trade on Kalshi are treated as regulated futures contracts under Section 1256 of the Internal Revenue Code. This is the same treatment that applies to the equity index futures I used to trade at CME.
Section 1256 contracts get a specific tax treatment:
This 60/40 split applies regardless of how long you actually held the position. You could buy a contract at 9 AM and sell it at 9:05 AM. Still 60/40. For someone in a higher tax bracket, this blended rate can be meaningfully better than paying ordinary income rates on everything.
If you had taxable activity on Kalshi during the year, you'll receive a 1099-B form. This arrives in early February for the prior tax year. It shows your proceeds, cost basis, and realized gains or losses across all your settled contracts.
A few things to know about this form:
When I got my first 1099-B, the sheer volume of transactions was intimidating. I'd been trading KXFEDDECISION contracts around every FOMC meeting, sometimes multiple positions per event. Each one showed up separately. Your tax software should handle this, but double-check the totals against your Kalshi account statements.
Here's where this kalshi tax guide gets practical. The math itself isn't complicated, but you need accurate inputs.
Start with your net realized gain or loss for the year. This is total proceeds minus total cost basis across all settled positions. If you deposited $5,000 and withdrew $7,000, that doesn't automatically mean $2,000 in gains. You need to look at the actual contract-level settlements.
Once you have your net gain:
For someone in the 32% federal bracket with $10,000 in Kalshi gains, the math looks roughly like this: $6,000 taxed at 15% ($900) plus $4,000 taxed at 32% ($1,280). Total federal tax of $2,180, or an effective rate of 21.8%. That's better than 32% on the whole amount.
State taxes vary. Some states follow the federal 60/40 treatment. Others don't. Check your state's rules or ask a local CPA.
Losses on Section 1256 contracts can offset gains from other Section 1256 contracts. If you also trade futures or options on regulated exchanges, those can net against each other.
You can also carry back Section 1256 losses to the prior three tax years, which is unusual in the tax code. Most capital losses only carry forward. This carryback provision can generate refunds from prior years if you had gains then and losses now.
If your net Section 1256 losses exceed your Section 1256 gains (including carrybacks), the remainder can offset other capital gains. After that, up to $3,000 per year can offset ordinary income, with the rest carrying forward indefinitely.
I had a rough stretch early in 2023 where I got the CPI direction wrong twice in a row. Those losses offset gains later in the year. The 60/40 split works in reverse too, which slightly reduces the tax benefit of the loss, but at least the carryback option exists.
Kalshi provides transaction history in your account dashboard. Download this periodically. Don't wait until March to scramble for records.
Things to track:
I keep a simple spreadsheet that I update monthly. It takes ten minutes. When tax season arrives, I compare my numbers to the 1099-B. They should match. If they don't, figure out why before filing.
If you're trading actively, consider using tax software that handles Section 1256 contracts automatically. TurboTax Premier and H&R Block Premium both support this, though the interface can be clunky.
Based on conversations in the Telegram channel I run, here are the errors I see most often:
Also, don't assume your general accountant understands prediction markets or Section 1256 treatment. Mine didn't until I explained it. Bring documentation.
Yes. Taxation is based on realized gains, not withdrawals. When a contract settles or you sell a position at a profit, that's a taxable event regardless of whether the funds stay in your Kalshi account. The IRS doesn't care if the money is still sitting on the platform. If you realized the gain, you owe tax on it.
Losses on Section 1256 contracts can offset gains from similar contracts, potentially carry back to prior years, or offset up to $3,000 of ordinary income annually. Any excess carries forward to future years. Keep good records of your losses because they have real value in reducing future tax bills or generating refunds from prior years.
No. Kalshi does not withhold federal or state income taxes from your account. You're responsible for estimating and paying your own taxes, either through quarterly estimated payments or at filing time. If you have significant gains, consider making quarterly payments to avoid underpayment penalties when you file your annual return.
Kalshi is currently only available to US residents and requires KYC verification. If you're trading from outside the US, you shouldn't have access to the platform. This guide covers US federal tax treatment only. Non-US persons with US-source income may have different obligations, but that's beyond the scope of what I can address here.
Not financial advice. I trade my own money and you can lose yours. Do your own research.