Kalshi Taxes: The Complete Guide to Reporting Your Prediction Market Gains

Nobody gets into prediction markets because they are excited about tax reporting. But if you are making money on Kalshi — or even if you are losing money — the IRS expects you to report it. And because Kalshi is a CFTC-regulated exchange, it reports your activity directly to the IRS, so this is not something you can quietly ignore.

The good news is that the tax treatment of event contracts on a regulated exchange is more favorable than most people expect. The bad news is that the rules are not perfectly settled, and getting it right requires some attention to detail. This guide covers everything you need to know to file correctly and avoid surprises.

Important disclaimer: This article is for informational purposes. Tax law is complicated, and your specific situation matters. Consult a CPA or tax attorney for advice tailored to your circumstances. We are traders, not tax professionals.

The 1099 Form: What Kalshi Sends You

Each year, Kalshi issues tax forms to traders who meet the applicable reporting thresholds. You will receive a 1099-B that reports your proceeds from settled and sold contracts. This form goes to both you and the IRS, so the agency already has a record of your trading activity before you file.

The 1099-B will show:

Proceeds from each transaction (what you received when a contract settled at $1.00 or when you sold a contract)
Cost basis (what you originally paid for the contract)
Date acquired and date sold/settled
Gain or loss on each transaction

Kalshi typically makes these forms available in your account by mid-February for the prior tax year. Download them as soon as they are available and reconcile them against your own records. Mistakes happen, and it is much easier to fix discrepancies before you file than after.

If your total proceeds are below the IRS reporting threshold, Kalshi may not issue a 1099-B. You are still required to report your gains and losses regardless of whether you receive a form. The IRS reporting obligation is on you, not on whether the exchange sends you paperwork.

How Kalshi Gains Are Classified

This is where it gets nuanced. Event contracts on Kalshi could potentially be classified under a few different tax treatments, and the IRS has not issued definitive guidance specific to CFTC-regulated event contracts as of early 2026. Here are the two most likely treatments:

Option 1: Section 1256 Contracts (60/40 Treatment)

Section 1256 of the tax code applies to “regulated futures contracts” and provides a favorable tax treatment: regardless of how long you held the contract, gains are automatically split 60% long-term and 40% short-term. Since long-term capital gains are taxed at a lower rate (0%, 15%, or 20% depending on your income), this can significantly reduce your tax bill.

For example, if you made $10,000 in net gains:

$6,000 would be taxed as long-term capital gains (lower rate)
$4,000 would be taxed as short-term capital gains (your ordinary income rate)

If your ordinary income tax rate is 32%, the blended rate on your Kalshi gains under Section 1256 would be roughly 22-23% instead of the full 32%. On $10,000 in gains, that is approximately $1,000 in tax savings.

There is a strong argument that Kalshi’s event contracts qualify as Section 1256 contracts because they are traded on a CFTC-regulated designated contract market. However, the IRS has not explicitly confirmed this treatment for event contracts, and some tax professionals take a more conservative position.

Option 2: Standard Capital Gains Treatment

Under this treatment, each trade is classified as either short-term or long-term based on how long you held the position:

Held less than one year: Short-term capital gain, taxed at your ordinary income rate
Held more than one year: Long-term capital gain, taxed at the preferential rate

Since most prediction market contracts settle within days or weeks, the vast majority of your gains will be short-term under this treatment. That means they are taxed at your full ordinary income rate, which can be as high as 37% at the federal level.

Which Treatment Should You Use?

This is a question for your CPA. The Section 1256 treatment is more favorable, and there is a reasonable legal basis for applying it to Kalshi contracts. But “reasonable legal basis” and “the IRS definitely agrees” are not the same thing. A conservative approach is to use standard capital gains treatment unless your tax professional advises otherwise.

If you are trading significant volume, the tax savings from Section 1256 treatment can be substantial, and it may be worth getting a formal tax opinion. For traders making a few hundred dollars a year, the difference is likely not worth the cost of specialized advice.

Record Keeping: What You Need to Track

Even though Kalshi provides a 1099-B, you should maintain your own records. Here is what to track:

For Every Trade

Date and time of entry
Contract description (market, strike, expiration)
Number of contracts
Entry price (cost basis per contract)
Exit price or settlement value
Fees paid
Net gain or loss

Monthly and Annual Summaries

Total gross gains (sum of all profitable trades)
Total gross losses (sum of all losing trades)
Total fees paid
Net gain or loss

Kalshi provides a transaction history download from your account dashboard. Download this monthly and store it somewhere safe. If you are ever audited, having clean, detailed records is your best defense.

Fees Are Part of Your Cost Basis

The fees you pay on Kalshi are added to your cost basis and reduce your reported gains. If you buy a contract for $0.50 and pay $0.02 in fees, your cost basis is $0.52. If it settles at $1.00, your gain is $0.48, not $0.50. This is a small but meaningful difference that adds up over hundreds of trades.

Make sure your records reflect the fee-adjusted cost basis. Kalshi’s 1099-B should account for this, but verify.

Net Losses: The Silver Lining

If you have a losing year on Kalshi, those losses are potentially deductible. How much you can deduct depends on your overall tax situation:

Capital Loss Deduction

If your Kalshi losses are treated as capital losses, you can deduct them against capital gains from other investments (stocks, crypto, etc.). If your net capital losses exceed your capital gains, you can deduct up to $3,000 per year against ordinary income, with the remainder carrying forward to future years.

Section 1256 Loss Carryback

If your Kalshi contracts qualify as Section 1256, you get an additional benefit: net losses can be carried back up to three years and applied against Section 1256 gains from those prior years. This can generate a tax refund for a year you have already filed, which is a uniquely powerful feature of Section 1256 treatment.

Trader Tax Status

If you trade frequently enough and meet certain IRS criteria (trading is your primary activity, you trade on most business days, etc.), you may qualify for trader tax status. This allows you to deduct trading-related expenses (software, data feeds, home office) as business expenses and potentially elect mark-to-market accounting. This is an advanced strategy that requires professional guidance.

Estimated Quarterly Tax Payments

If your Kalshi trading generates significant income, you may need to make estimated quarterly tax payments to avoid underpayment penalties. The IRS expects you to pay taxes throughout the year as you earn income, not just at filing time.

The general rule: if you expect to owe more than $1,000 in federal taxes beyond what is withheld from your other income (like a W-2 salary), you should make quarterly estimated payments.

Quarterly due dates for 2026:

Q1: April 15, 2026
Q2: June 15, 2026
Q3: September 15, 2026
Q4: January 15, 2027

To calculate your estimated payments, take your expected annual Kalshi net gains, apply the applicable tax rate, and divide by four. Your CPA can help you dial this in based on your full income picture.

If you are making a few thousand dollars per year on Kalshi and have a W-2 job with normal withholding, you can probably adjust your W-4 withholding instead of making separate estimated payments. Ask your accountant which approach is simpler for your situation.

Comparison to Unregulated Platforms

One of the practical advantages of trading on a regulated exchange like Kalshi is clean tax reporting. Kalshi issues a 1099, maintains detailed transaction records, and calculates your cost basis. Compare that to crypto-native platforms like Polymarket, where you are responsible for tracking every blockchain transaction, calculating cost basis across USDC movements, and reporting everything yourself.

On unregulated platforms, you still owe taxes on your gains — the IRS does not care whether the platform reports it or not. But the burden of record keeping and calculation falls entirely on you, and mistakes are easier to make.

Common Mistakes to Avoid

1. Ignoring Small Gains

“I only made $300 on Kalshi, so I don’t need to report it.” Wrong. All income is reportable. And since Kalshi sends data to the IRS, any discrepancy between their records and your return is a red flag.

2. Forgetting to Include Fees in Cost Basis

Fees reduce your taxable gains. If you are not adjusting your cost basis for fees, you are overpaying on taxes. Over a year of active trading, this can amount to hundreds of dollars.

3. Not Tracking Losing Trades

Losses offset gains. If you only report your winners, you are paying taxes on more income than you actually earned. Track and report every trade, winning and losing.

4. Assuming Crypto Platform Gains Are Tax-Free

Some traders assume that because Polymarket or other crypto platforms do not issue 1099s, the gains are not taxable. They are. The IRS has been increasingly focused on crypto-related income, and failing to report it carries real penalties.

When to Get Professional Help

If any of the following apply to you, it is time to talk to a CPA who understands derivatives or financial instruments:

Your annual Kalshi gains exceed $5,000
You trade on multiple platforms (Kalshi, Polymarket, etc.)
You want to claim Section 1256 treatment
You are considering trader tax status
You have significant losses you want to deduct

A good tax professional will cost you $200-$500 for a consultation but can easily save you multiples of that in taxes. This is not an area where cutting corners makes sense.

The Bottom Line

Trading on Kalshi creates real tax obligations, and the IRS knows about your activity. The good news is that the tax treatment is potentially favorable — especially if Section 1256 applies — and your losses are deductible. Keep clean records, include fees in your cost basis, report every trade, and get professional advice if your trading activity is substantial.

The traders who treat their prediction market activity as a serious financial endeavor — including the tax side — are the ones who build sustainable, long-term profitability. Do not let a preventable tax mistake eat into the edge you have worked hard to find.