Most traders jumping into prediction markets have no idea how the tax treatment stacks up against what they already know from stock options, sports betting, or futures. Accountants keep asking what an "event contract" even is, and Kalshi's own tax documentation covers different ground than most people expect. This guide compares the three treatments side by side and marks where the IRS has and has not given clear guidance.
Kalshi is a CFTC-regulated exchange, which puts it in a weird middle ground. It's not a sportsbook. It's not a traditional futures broker. And it's definitely not your Schwab account where you trade options on AAPL.
The IRS hasn't issued specific guidance on prediction markets as a distinct category. That means accountants (and traders) are left pattern-matching to existing rules. Depending on how you interpret things, Kalshi contracts could be taxed like:
The answer matters. A lot. On a $10,000 profit, the difference between ordinary income rates and the 60/40 blended rate could be $1,500 or more, depending on your bracket.
If you trade equity options (calls and puts on stocks or ETFs), the rules are straightforward, even if the paperwork is annoying.
Gains on options held less than a year are short-term capital gains, taxed at your ordinary income rate. Hold them longer than a year (rare for most options traders), and you get long-term rates. Your broker sends you a 1099-B, and you report everything on Schedule D.
The key point: stock options are clearly classified as capital assets. There's no ambiguity about their tax treatment. You know what you're getting into.
Sports betting is taxed as gambling income, period. This is actually the worst treatment from a tax perspective.
Here's what that means:
So if you win $5,000 and lose $8,000 on DraftKings in a year, you can deduct $5,000 of losses against your $5,000 of wins (if you itemize). But that extra $3,000 in losses? Gone. No carryforward, no deduction against your salary.
This is why the gambling treatment is brutal for active traders who have losing years mixed with winning ones.
Here's where things get interesting for anyone comparing Kalshi tax treatment vs stock options, sports betting, and futures trading.
Regulated futures contracts get Section 1256 treatment. That means:
On a CME-regulated futures desk, this is just how life works. You can scalp ES futures for three minutes and still get the 60/40 split. It's a meaningful advantage.
The question everyone asks: do Kalshi contracts qualify for Section 1256?
Kalshi's position is that its contracts are "regulated futures contracts" under Section 1256. They're traded on a CFTC-regulated exchange, they're standardized, and they're cleared. That checks the boxes.
But, and this is important, the IRS hasn't explicitly confirmed this for event contracts. Some tax professionals are cautious. They might recommend treating gains as ordinary income or short-term capital gains until there's clearer guidance.
Some traders treat Kalshi gains under Section 1256, document their reasoning, and keep detailed records so they can show a good-faith interpretation based on the contract structure and regulatory status if the IRS ever asks.
This page is not telling you what to do; the IRS has not settled the question. Talk to a CPA who understands derivatives before picking a position.
Let's put real numbers on this. Say you're in the 32% federal bracket and you net $20,000 in profits.
That's a $2,040 difference on the same profit. Scale that up or compound it over years, and it matters.
This is why understanding Kalshi tax treatment vs stock options, sports betting, and futures trading isn't just accounting trivia. It affects your actual edge.
Per Kalshi's Help Center (checked September 25, 2026), the 1099 forms cover interest (1099-INT), credits and rewards (1099-MISC), crypto transfers (1099-B), and ZeroHash digital-asset reporting (1099-DA). Event-contract trading is summarized in the account PnL statement, which covers profits, losses, and fees, and you'll use that statement to fill out Form 6781 if you're claiming Section 1256 treatment, or Schedule D if you're treating them as standard capital gains.
Keep your own records too. Download your trade history from kalshi.com periodically. Platforms can make errors, and you don't want to be reconstructing your P&L from memory in March.
If you want to see how other traders are thinking about this stuff (and debate the finer points), the @Kalshi_market Telegram channel posts market takes and tax season observations.
Yes. Kalshi is a US-regulated exchange that requires KYC, and they document your activity in the account PnL statement, with 1099 forms for interest, credits and rewards, crypto transfers, and ZeroHash digital-asset reporting. Don't assume you can skip reporting just because it's a newer platform.
If your losses are treated as capital losses (either standard or Section 1256), you can deduct up to $3,000 per year against ordinary income, with the rest carrying forward. If treated as gambling losses, you can only offset gambling winnings, and only if you itemize. The classification matters.
No. Polymarket operates offshore and uses crypto settlement. It doesn't issue 1099s to US users (who aren't supposed to be trading there anyway). Kalshi is CFTC-regulated, USD-based, and provides tax documentation. The compliance infrastructure is completely different.
Yes, especially if you're trading actively across multiple asset classes. A generalist CPA might not know Section 1256 rules or how to interpret event contracts. Finding someone who handles futures traders will save you headaches and potentially money on your return.
Primary sources I checked: IRS Publication 550 (how capital assets and Section 1256 contracts are categorized), the CFTC KalshiEX designation (Kalshi's DCM status), and Kalshi's tax documentation article (live September 25, 2026: 1099-INT interest, 1099-MISC credits and rewards, 1099-B crypto transfers, 1099-DA ZeroHash reporting, PnL statement).
Not financial advice. This site provides educational information only. Trading involves risk, and you can lose money. Verify current market rules and do your own research.