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Kalshi Taxes: How to Report Event Contract Gains (2026 Guide)
Updated March 2026 — Everything you need to know about paying taxes on Kalshi event contract profits, including IRS forms, the 60/40 rule, calculation examples, and strategies to legally minimize your tax bill.
Key Tax Facts for Kalshi Traders
- Taxable: Yes — all Kalshi profits are taxable income in the United States
- 1099 Forms: Kalshi sends Form 1099-B if you have $600+ in gross proceeds
- IRS Classification: Event contracts are Section 1256 contracts (CFTC-regulated)
- Tax Treatment: 60/40 rule — 60% taxed as long-term capital gains, 40% as short-term
- Max long-term rate: 20% (vs. up to 37% for ordinary income)
- Losses: Deductible — up to $3,000/year against ordinary income, with 3-year carryback
- Wash sale rule: Does not apply to Section 1256 contracts
Table of Contents
- Are Kalshi Earnings Taxable?
- How the IRS Classifies Event Contracts
- The 60/40 Tax Rule for Event Contracts
- Kalshi 1099 Forms
- How to Report Kalshi Gains on Your Tax Return
- Tax Calculation Examples
- Kalshi vs Polymarket Taxes
- Tax Strategies to Minimize Your Bill
- State Taxes on Event Contracts
- Common Mistakes to Avoid
- Frequently Asked Questions
If you have made money trading on Kalshi, the IRS wants its share. But here is the good news: because Kalshi is a CFTC-regulated exchange, your event contracts qualify for one of the most favorable tax treatments available to traders — the Section 1256 60/40 rule. This means a significant portion of your gains is taxed at the lower long-term capital gains rate, even if you held a contract for just a few minutes.
This guide covers everything you need to know about Kalshi taxes: how the IRS classifies event contracts, which forms you will receive, how to report gains and losses step-by-step, real calculation examples with dollar amounts, and legal strategies to keep more of your profits.
Disclaimer: This guide is for informational purposes only and does not constitute tax advice. Tax laws are complex and subject to change. Consult a qualified tax professional for advice specific to your situation.
Are Kalshi Earnings Taxable?
Yes. All profits from trading on Kalshi are taxable income in the United States. This is true regardless of:
- How much you earned (even $1 in profit is technically taxable)
- Whether you received a 1099 form from Kalshi
- Whether you withdrew the money or left it in your Kalshi account
- How long you held the contracts
- Whether you consider it "gambling" or "investing"
Kalshi is a CFTC-regulated Designated Contract Market (DCM). This is the same regulatory classification as the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE). From the IRS's perspective, trading on Kalshi is no different from trading futures or options on a regulated exchange — and those profits have always been taxable.
Why Kalshi Profits Are Not "Gambling Winnings"
A common misconception is that prediction market profits are taxed like gambling winnings (reported on Schedule 1 as "other income"). This is not the case for Kalshi. Because Kalshi is a CFTC-regulated exchange, its contracts are treated as regulated futures contracts under Section 1256 of the Internal Revenue Code. This classification provides significant tax advantages over gambling income:
- You get the favorable 60/40 capital gains split (explained below)
- You can deduct losses against gains (gambling losses can only offset gambling winnings)
- You can carry losses back 3 years for a tax refund
- You are not subject to the 24% withholding that applies to gambling winnings over $5,000
The taxable event occurs when a contract settles (the event outcome is determined and the contract pays out $1.00 or $0.00) or when you sell a contract before settlement. Simply buying and holding an open position does not trigger a tax event, although Section 1256 contracts are subject to mark-to-market rules at year-end (more on this below).
How the IRS Classifies Event Contracts
Understanding how the IRS classifies Kalshi contracts is critical because it determines which tax rules apply to your gains and losses. Here is the classification chain:
1. CFTC Regulation: Kalshi is a Designated Contract Market (DCM) regulated by the Commodity Futures Trading Commission
2. Contract Type: Kalshi offers "event contracts" — binary options on real-world outcomes
3. IRC Classification: Section 1256 contracts (regulated futures contracts)
4. Tax Treatment: 60% long-term capital gains / 40% short-term capital gains
5. Reporting Form: IRS Form 6781 (Gains and Losses from Section 1256 Contracts)
What Is a Section 1256 Contract?
Section 1256 of the Internal Revenue Code defines a special category of financial contracts that receive preferential tax treatment. To qualify as a Section 1256 contract, an instrument must be:
- A regulated futures contract — traded on a qualified board of trade (like the CME, CBOE, or Kalshi)
- A foreign currency contract — certain forex forwards
- A non-equity option — options on commodities, indices, or futures
- A dealer equity option — only for licensed dealers
- A dealer securities futures contract — only for licensed dealers
Kalshi event contracts fall under category 1 — regulated futures contracts — because Kalshi is a CFTC-regulated DCM. This is the same classification that applies to S&P 500 futures, crude oil futures, and other commodity contracts traded on major exchanges.
Mark-to-Market Treatment
One important aspect of Section 1256 contracts is the mark-to-market rule. Under IRC Section 1256(a)(1), all open positions at the end of the tax year are treated as if they were sold at their fair market value on December 31. This means:
- You may owe taxes on unrealized gains on open Kalshi positions at year-end
- You can also deduct unrealized losses on open positions
- When you eventually close or settle the position, your basis is adjusted to the December 31 value
On November 15, you buy 100 Kalshi "Yes" contracts at $0.40 each ($40.00 total cost).
On December 31, the contract is still open and trading at $0.65.
Unrealized gain: (100 × $0.65) - $40.00 = +$25.00
Tax consequence: You report $25.00 in gains for the current tax year, even though you haven't sold.
On February 1 of the next year, the contract settles "Yes" at $1.00.
Additional gain in the new tax year: (100 × $1.00) - (100 × $0.65) = +$35.00
Your new basis was $0.65 (the Dec 31 mark-to-market value), not your original $0.40 purchase price.
For most Kalshi traders, mark-to-market is simple because event contracts often settle within days or weeks. But if you hold positions across the year-end boundary, be aware of this rule.
The 60/40 Tax Rule for Event Contracts
The 60/40 rule is the single biggest tax advantage of trading on a CFTC-regulated platform like Kalshi. Here is how it works:
The 60/40 Rule Explained
Under Section 1256(a)(3) of the Internal Revenue Code, net gains from regulated futures contracts are automatically split:
- 60% is taxed as long-term capital gains (maximum rate: 20%)
- 40% is taxed as short-term capital gains (at your ordinary income tax rate, up to 37%)
This split applies regardless of how long you held the contract. Even if you bought and sold a Kalshi contract in the same minute, 60% of the gain gets the favorable long-term rate.
Why This Matters: Tax Rate Comparison
To understand the value of the 60/40 rule, compare the effective tax rate on Kalshi gains vs. ordinary income or short-term stock gains:
| Your Income Tax Bracket | Ordinary Income / Short-Term Rate | Long-Term Capital Gains Rate | Blended 60/40 Rate (Kalshi) | Tax Savings vs. Short-Term |
|---|---|---|---|---|
| 10% (up to $11,925) | 10% | 0% | 4.0% | 6.0% |
| 12% ($11,926 - $48,475) | 12% | 0% | 4.8% | 7.2% |
| 22% ($48,476 - $103,350) | 22% | 15% | 17.8% | 4.2% |
| 24% ($103,351 - $197,300) | 24% | 15% | 18.6% | 5.4% |
| 32% ($197,301 - $250,525) | 32% | 15% | 21.8% | 10.2% |
| 35% ($250,526 - $626,350) | 35% | 15% | 23.0% | 12.0% |
| 37% (over $626,350) | 37% | 20% | 26.8% | 10.2% |
Note: 2026 tax brackets shown for single filers. Long-term capital gains rates also depend on total income. The Net Investment Income Tax (NIIT) of 3.8% may apply to high earners above $200,000 (single) or $250,000 (married filing jointly).
You earned $10,000 in net profits from Kalshi in 2026. Your ordinary income puts you in the 32% tax bracket.
Without the 60/40 rule (if treated as short-term gains):
Tax = $10,000 × 32% = $3,200
With the 60/40 rule (Section 1256 treatment):
Long-term portion: $10,000 × 60% = $6,000 × 15% = $900
Short-term portion: $10,000 × 40% = $4,000 × 32% = $1,280
Total tax = $900 + $1,280 = $2,180
Savings: $1,020 (a 31.9% reduction in your tax bill on these gains)
The higher your income tax bracket, the more you save with the 60/40 rule. For traders in the 37% bracket, the blended rate of 26.8% represents a savings of over 10 percentage points on every dollar of profit.
Kalshi 1099 Forms
Kalshi issues tax documents to help you report your trading activity to the IRS. Here is what you need to know about the forms you will receive.
Form 1099-B: Proceeds from Broker and Barter Exchange Transactions
If your gross proceeds from Kalshi trades exceed $600 during the tax year, Kalshi will issue you a Form 1099-B. This form reports:
- Box 1a: Description of the contracts traded
- Box 1d: Gross proceeds from all settlements and sales
- Box 1e: Cost or other basis (what you paid for the contracts)
- Box 1g: Adjustments (if applicable)
- Box 2: Whether the gain/loss is short-term or long-term (for Section 1256 contracts, this will indicate the special treatment)
- Box 11: Aggregate profit or loss from regulated futures contracts
When You Will Receive Your 1099
| Milestone | Typical Date | Details |
|---|---|---|
| Tax year ends | December 31 | All open positions are marked to market |
| 1099-B available | Mid-February | Digital copy available in your Kalshi account dashboard |
| 1099-B mailed | Late January - February 15 | Paper copy mailed if you opted for physical delivery |
| Tax filing deadline | April 15 | Federal return due (or October 15 with extension) |
Important: You Owe Taxes Even Without a 1099
If your gross proceeds are below $600, Kalshi is not required to send you a 1099-B. However, you are still legally obligated to report all gains and losses on your tax return. The IRS can match your trading activity through other data sources. Keep your own records of every trade — Kalshi provides a downloadable transaction history in your account settings that you can use for tax reporting.
How to Download Your Kalshi Tax Documents
- Log in to your Kalshi account
- Navigate to Settings → Tax Documents (or Account → Tax Center)
- Download your Form 1099-B (PDF format)
- Also download your full transaction history (CSV format) for your records
- Provide both documents to your tax preparer, or use them for self-filing
How to Report Kalshi Gains on Your Tax Return
Reporting Kalshi gains involves several IRS forms. Here is the step-by-step process:
Step 1: Gather Your Documents
Before you start, collect:
- Form 1099-B from Kalshi (or your transaction history if no 1099 was issued)
- Records of any Kalshi fees paid (trading fees can be added to your cost basis)
- Your full trade log showing entry prices, exit prices, dates, and contract quantities
Step 2: Complete IRS Form 6781
Form 6781: Gains and Losses from Section 1256 Contracts and Straddles is the primary form for reporting Kalshi gains. Here is how to fill it out:
Line 1: Enter your aggregate net gain or loss from all Section 1256 contracts. This number comes from your Kalshi 1099-B (Box 11) or from your own calculations of total gains minus total losses for the year.
Line 2: If you have an overall loss, check Box A if you are carrying back the loss (optional 3-year carryback). Otherwise, skip to Line 3.
Line 3-7: The form calculates the 60/40 split automatically:
• Line 8: 40% of net gain → short-term capital gain (goes to Schedule D, Line 4)
• Line 9: 60% of net gain → long-term capital gain (goes to Schedule D, Line 11)
Step 3: Transfer to Schedule D
Schedule D (Form 1040): Capital Gains and Losses is where the 60/40 split from Form 6781 ultimately lands:
- Schedule D, Line 4: Enter the short-term portion (40%) from Form 6781 Line 8
- Schedule D, Line 11: Enter the long-term portion (60%) from Form 6781 Line 9
- These amounts are combined with any other capital gains and losses from stocks, real estate, etc.
- The net result flows to your Form 1040, Line 7
Step 4: Form 8949 (If Applicable)
Form 8949: Sales and Other Dispositions of Capital Assets is typically used for stock trades and other capital assets. For Section 1256 contracts, you generally do not need Form 8949 because the reporting goes through Form 6781 instead. However, you may need Form 8949 if:
- You have trades on platforms that are not Section 1256 (like Polymarket)
- Your 1099-B reports transactions individually rather than in aggregate
- There are discrepancies between your 1099-B and your actual basis that need adjustment
Visual Summary: Tax Form Flow
Kalshi 1099-B (your trading data)
↓
Form 6781, Part I (calculate 60/40 split)
↓
Schedule D (combine with other capital gains/losses)
↓
Form 1040, Line 7 (total capital gain/loss on your return)
Using Tax Software
Most popular tax software (TurboTax, H&R Block, FreeTaxUSA) supports Section 1256 contracts and Form 6781. When importing your Kalshi 1099-B:
- Look for the option to enter "Section 1256 contracts" or "regulated futures contracts"
- Enter the aggregate net gain or loss (not individual trades)
- The software will automatically calculate the 60/40 split and fill in Schedule D
If you use a CPA or tax preparer, simply provide your 1099-B and transaction history. Any preparer familiar with futures or options trading will know how to handle Section 1256 contracts.
Tax Calculation Examples
Let's walk through several realistic scenarios to show exactly how Kalshi taxes work in practice.
Example 1: Small Profitable Year
60/40 Split:
Long-term (60%): $2,500 × 0.60 = $1,500 × 15% = $225
Short-term (40%): $2,500 × 0.40 = $1,000 × 22% = $220
Total federal tax on Kalshi gains: $445
Effective rate: 17.8%
Without the 60/40 rule (all short-term): $2,500 × 22% = $550
Savings from 60/40: $105
Example 2: Active Trader with Significant Gains
60/40 Split:
Long-term (60%): $25,000 × 0.60 = $15,000 × 15% = $2,250
Short-term (40%): $25,000 × 0.40 = $10,000 × 24% = $2,400
Total federal tax on Kalshi gains: $4,650
Effective rate: 18.6%
Without the 60/40 rule: $25,000 × 24% = $6,000
Savings from 60/40: $1,350
Example 3: Mixed Wins and Losses
Net gain: $8,000 - $3,000 = $5,000
60/40 Split:
Long-term (60%): $5,000 × 0.60 = $3,000 × 15% = $450
Short-term (40%): $5,000 × 0.40 = $2,000 × 24% = $480
Total federal tax: $930
Effective rate: 18.6%
Key point: Your $3,000 in losses directly reduced your taxable gains from $8,000 to $5,000, saving you $930 × (3,000/5,000) = $558 in taxes.
Example 4: Net Loss Year
Net Section 1256 loss: -$7,000
Capital loss deduction against ordinary income: -$3,000 (the maximum per year)
Tax savings: $3,000 × 22% = $660 reduction in your tax bill
Remaining loss to carry forward: $4,000 (can be used next year)
Alternative — 3-year loss carryback: Instead of only carrying forward, Section 1256 allows you to carry back losses to the 3 prior years and amend those returns. If you had Section 1256 gains in 2023, 2024, or 2025, you could apply this $7,000 loss against those prior gains and receive a tax refund.
Example 5: High-Income Trader (NIIT Applies)
60/40 Split:
Long-term (60%): $50,000 × 0.60 = $30,000 × 20% = $6,000
Short-term (40%): $50,000 × 0.40 = $20,000 × 35% = $7,000
Subtotal: $13,000
NIIT (3.8%): $50,000 × 3.8% = $1,900
Total federal tax on Kalshi gains: $14,900
Effective rate: 29.8%
Without the 60/40 rule: ($50,000 × 35%) + ($50,000 × 3.8%) = $19,400
Savings from 60/40: $4,500
Start Trading on Kalshi
CFTC-regulated with automatic 1099 reporting and favorable 60/40 tax treatment. Sign up in minutes.
Sign Up for Kalshi →Kalshi vs Polymarket Taxes
Kalshi and Polymarket are the two most popular prediction market platforms, but they differ dramatically when it comes to taxes. Here is a detailed comparison:
| Tax Factor | Kalshi | Polymarket |
|---|---|---|
| Regulation | CFTC-regulated (US DCM) | Offshore (not US-regulated) |
| 1099 form issued? | Yes (1099-B) | No |
| IRS classification | Section 1256 contracts | Unclear — likely ordinary income or short-term capital gains |
| 60/40 tax treatment? | Yes | No |
| Max effective federal rate | 26.8% (+ 3.8% NIIT) | 37% (+ 3.8% NIIT) |
| Loss carryback | 3-year carryback available | No carryback |
| Wash sale rule | Exempt | May apply (unclear) |
| Currency | USD (simple) | USDC/crypto (additional crypto tax events) |
| Record keeping | Kalshi provides all records | You must track everything yourself (blockchain transactions) |
| Tax software support | Full support (1099-B import) | Requires crypto tax software (Koinly, CoinTracker, etc.) |
| Ease of reporting | Easy | Difficult |
The Polymarket Tax Challenge
Polymarket trading involves multiple potential tax events that make reporting significantly more complex:
- Converting USD to USDC: If you buy USDC and its value changes before you use it on Polymarket, that is a separate taxable event
- Trading on Polymarket: Each trade may be a taxable event, and you must calculate your own cost basis
- Converting USDC back to USD: Another potential taxable event if the USDC value has changed
- No 1099: Polymarket does not report to the IRS, so you must self-report every trade
- Blockchain tracking: You need to trace on-chain transactions to reconstruct your trading history
Kalshi (Section 1256, 60/40):
Long-term: $6,000 × 15% = $900
Short-term: $4,000 × 32% = $1,280
Total tax: $2,180
Polymarket (all short-term / ordinary income):
Total tax: $10,000 × 32% = $3,200
Kalshi saves you $1,020 in taxes on the same $10,000 profit — plus hours of record-keeping headaches.
Bottom Line on Kalshi vs Polymarket Taxes
If you are a US taxpayer, Kalshi is significantly better for taxes. You get the 60/40 rule (lower rates), automatic 1099 reporting (less work), 3-year loss carryback (more flexibility), and USD-based trading (no crypto tax complications). The only scenario where Polymarket might be comparable is if you are already heavily into crypto and have crypto tax software set up. For everyone else, Kalshi makes tax season dramatically easier.
Compare Both Platforms
Kalshi: 1099 forms, 60/40 tax treatment, USD deposits. Polymarket: lowest fees, deepest liquidity, global access.
Sign Up for Kalshi → Try Polymarket →Tax Strategies to Minimize Your Bill
Here are legitimate, legal strategies to reduce the amount of tax you owe on Kalshi event contract profits. Always consult a tax professional before implementing these strategies.
1. Tax-Loss Harvesting
Tax-loss harvesting means intentionally selling losing positions before year-end to realize losses that offset your gains. This is especially powerful with Section 1256 contracts because they are exempt from the wash sale rule.
You have $5,000 in realized Kalshi gains and hold an open position that is currently at a $2,000 unrealized loss.
Without harvesting: You owe tax on $5,000 in gains.
With harvesting: Sell the losing position before Dec 31 to realize the $2,000 loss. Your net gain is now $3,000. You save tax on $2,000 of income.
Because there is no wash sale rule for Section 1256 contracts, you can immediately re-enter the same position if you still believe in the trade. With stocks, you would have to wait 31 days to repurchase.
2. Use the 3-Year Loss Carryback
Section 1256 contracts offer a unique 3-year loss carryback provision that is not available for regular capital losses. If you have a net loss year on Kalshi, you can:
- Carry back the loss to the 3 prior tax years (applied to the earliest year first)
- Apply the loss only against Section 1256 gains in those prior years
- File Form 1045 (Application for Tentative Refund) or an amended return to claim the refund
This means a bad year on Kalshi in 2026 could generate a tax refund from 2023, 2024, or 2025 if you had Section 1256 gains in those years.
3. Maximize the 60/40 Benefit
Since Kalshi gains already receive 60/40 treatment, consider concentrating your short-term trading on Kalshi rather than on non-Section 1256 instruments. For example:
- If you are choosing between a short-term stock trade and a Kalshi event contract with similar expected returns, the Kalshi trade will be taxed more favorably
- Day trading on Kalshi gets the 60/40 rate; day trading stocks does not
- This does not mean you should trade more — only that Kalshi offers a tax advantage for trades you were already planning to make
4. Track and Deduct Trading Expenses
Certain expenses related to your Kalshi trading may be deductible:
- Trading fees: Kalshi's 2-cent per contract fee is included in your cost basis, reducing your taxable gains automatically
- Tax preparation fees: If you pay a CPA to handle your trading taxes, this may be deductible
- Tax software: The cost of tax software used for reporting trading income
- Education: If you qualify as a "trader" (vs. "investor") under IRS rules, trading-related education and research expenses may be deductible
5. Consider Retirement Account Strategies
While you cannot currently trade Kalshi contracts inside an IRA or 401(k), you can use your Kalshi tax savings to fund retirement accounts:
- Contribute to a Traditional IRA ($7,000 limit in 2026, $8,000 if age 50+) to get an above-the-line deduction
- Maximize your 401(k) contributions ($23,500 in 2026) to offset the additional income from Kalshi gains
- Consider a Roth IRA conversion strategy in years when you have Kalshi losses to offset the conversion income
6. Quarterly Estimated Tax Payments
If you expect to owe $1,000 or more in taxes from Kalshi profits, the IRS requires you to make quarterly estimated tax payments to avoid underpayment penalties. The quarterly deadlines are:
| Quarter | Payment Period | Due Date |
|---|---|---|
| Q1 | January 1 - March 31 | April 15 |
| Q2 | April 1 - May 31 | June 15 |
| Q3 | June 1 - August 31 | September 15 |
| Q4 | September 1 - December 31 | January 15 (next year) |
Use Form 1040-ES to calculate and pay quarterly estimates. A common safe harbor: pay at least 100% of your prior year's total tax liability (110% if your AGI exceeds $150,000) to avoid penalties, regardless of how much you owe this year.
State Taxes on Event Contracts
In addition to federal taxes, most states tax capital gains as ordinary income. The 60/40 rule is a federal provision — states handle it differently:
States with No Income Tax
If you live in one of these states, you pay no state tax on Kalshi profits:
- Alaska
- Florida
- Nevada
- New Hampshire (no tax on earned income; taxes interest and dividends only)
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
States That Tax Capital Gains as Ordinary Income
Most states that do have an income tax treat capital gains (including the Section 1256 60/40 split) as ordinary income at the state level. This means the federal 60/40 benefit does not reduce your state tax bill. Notable high-tax states:
| State | Top Income Tax Rate | Notes |
|---|---|---|
| California | 13.3% | Highest state income tax rate in the US; all capital gains taxed as ordinary income |
| New York | 10.9% | Plus NYC residents pay an additional 3.876% city tax |
| New Jersey | 10.75% | Capital gains taxed as ordinary income |
| Oregon | 9.9% | No sales tax but high income tax |
| Minnesota | 9.85% | Capital gains taxed as ordinary income |
| Hawaii | 11.0% | Special 7.25% rate for capital gains may apply |
You earned $10,000 in Kalshi profits. You are in the 24% federal bracket and live in California (9.3% state bracket for this income).
Federal (60/40):
Long-term: $6,000 × 15% = $900
Short-term: $4,000 × 24% = $960
Federal total: $1,860
California (ordinary income):
$10,000 × 9.3% = $930
Total tax: $2,790 (27.9% effective combined rate)
State Tax Tip
If you are a high-volume Kalshi trader generating significant profits, your state of residence has a major impact on your after-tax returns. Traders in states like Florida, Texas, Nevada, and Wyoming keep significantly more of their profits. While we are not suggesting you move for tax purposes alone, it is worth factoring into your financial planning. Some states also have specific rules for investment income that may benefit prediction market traders — consult a tax professional familiar with your state's laws.
Common Mistakes to Avoid
These are the most frequent errors Kalshi traders make at tax time. Avoiding them can save you money, stress, and potential IRS penalties.
Mistake 1: Not Reporting Kalshi Income at All
Some traders assume that if they only made a small amount, they do not need to report it. This is wrong. All income is reportable regardless of amount. If Kalshi sends a 1099-B, the IRS receives a copy too. Failing to report income that the IRS knows about is a fast way to trigger an audit notice and penalties.
IRS Penalties for Not Reporting
- Accuracy-related penalty: 20% of the underpaid tax amount
- Failure-to-file penalty: 5% of unpaid taxes for each month late, up to 25%
- Failure-to-pay penalty: 0.5% of unpaid taxes per month, up to 25%
- Interest: Compounds daily on any unpaid balance
- Fraud penalty: Up to 75% of underpaid tax for intentional evasion
Mistake 2: Treating Kalshi Gains as Gambling Income
Do not report Kalshi profits on Schedule 1, Line 8b ("Other income — Gambling"). Kalshi contracts are Section 1256 contracts, not gambling. Reporting them as gambling means you:
- Miss out on the 60/40 tax treatment
- Cannot deduct losses beyond your gambling winnings
- Cannot carry back losses
- May trigger a higher effective tax rate
Mistake 3: Forgetting Mark-to-Market on Open Positions
If you hold open Kalshi positions on December 31, those positions must be marked to market. Forgetting this step means you may underreport or overreport your gains for the year. Check your year-end account statement and include unrealized gains/losses on open positions.
Mistake 4: Not Keeping Adequate Records
Even though Kalshi provides a 1099-B, you should maintain your own records of:
- Every trade (date, contract, quantity, price, fees)
- Deposits and withdrawals
- Year-end open positions and their market values
- Screenshots or exports of your Kalshi transaction history
The IRS can audit returns up to 3 years back (6 years if income is underreported by more than 25%), so keep records for at least 3-6 years.
Mistake 5: Missing Quarterly Estimated Tax Payments
If your Kalshi profits are significant and you are not withholding enough from your W-2 income to cover the additional tax, you may owe an underpayment penalty. Set up quarterly estimated payments (Form 1040-ES) or increase your W-2 withholding to avoid surprises in April.
Mistake 6: Mixing Personal and Trading Finances
Using the same bank account for personal expenses and Kalshi trading makes it harder to track your trading activity. Consider:
- Using a dedicated bank account for Kalshi deposits and withdrawals
- Keeping a trading journal or spreadsheet
- Downloading your transaction history from Kalshi regularly (not just at tax time)
Mistake 7: Not Claiming Losses
If you lost money on Kalshi, do not just ignore it. Report your losses to get the tax benefit:
- Losses offset other Section 1256 gains
- Up to $3,000 in net losses can offset ordinary income
- Excess losses carry forward to future years
- The 3-year carryback can generate refunds from prior years
Frequently Asked Questions
Do I have to pay taxes on Kalshi earnings?
Yes. All profits from Kalshi event contracts are taxable income in the United States. Kalshi is a CFTC-regulated exchange and reports your trading activity to the IRS. You will receive a 1099-B form if you meet the reporting threshold ($600+ in gross proceeds), and you are required to report all gains and losses on your federal tax return regardless of whether you receive a form.
Does Kalshi send a 1099 tax form?
Yes. Kalshi issues Form 1099-B to traders who meet the IRS reporting threshold (typically $600 or more in gross proceeds). The form is usually available by mid-February for the prior tax year via your Kalshi account dashboard. Even if you do not receive a 1099-B because your proceeds were under $600, you are still legally required to report all trading gains and losses on your tax return.
What is the 60/40 tax rule for event contracts?
Under Section 1256 of the Internal Revenue Code, CFTC-regulated contracts like those on Kalshi receive special tax treatment: 60% of your net gains are taxed as long-term capital gains (maximum 20% rate) and 40% are taxed as short-term capital gains (at your ordinary income rate, up to 37%). This applies regardless of how long you held the contract — even day trades get the 60/40 split. For a trader in the 32% bracket, this produces a blended rate of about 21.8% instead of 32%.
How do I report Kalshi profits on my tax return?
Report Kalshi gains using IRS Form 6781 (Gains and Losses from Section 1256 Contracts). Enter your net gain or loss from all Section 1256 contracts on Line 1. The form automatically calculates the 60/40 split. The results flow to Schedule D of your Form 1040: 40% goes to Line 4 (short-term) and 60% goes to Line 11 (long-term). Most tax software handles this automatically when you select "Section 1256 contracts" and enter the aggregate amount from your Kalshi 1099-B.
Can I deduct Kalshi losses on my taxes?
Yes. Losses from Kalshi event contracts can offset gains from other Section 1256 contracts. If your net result is a loss, you can deduct up to $3,000 per year against ordinary income ($1,500 if married filing separately). Excess losses can be carried forward indefinitely. Section 1256 contracts also allow a special 3-year loss carryback — you can amend prior year returns to apply this year's loss against past Section 1256 gains and potentially receive a tax refund.
How are Kalshi taxes different from Polymarket taxes?
Kalshi issues 1099-B forms and its contracts qualify as Section 1256 contracts with the favorable 60/40 tax treatment. Polymarket operates offshore using cryptocurrency (USDC), does not issue 1099 forms, and its tax treatment is less clear — gains may be treated as ordinary income or short-term capital gains without the 60/40 benefit. Kalshi is significantly easier to handle at tax time and typically results in a lower tax rate on the same profits.
Do I owe taxes if I lost money on Kalshi?
No, you do not owe taxes on losses. In fact, you can use Kalshi losses to reduce your tax bill. Losses can offset other capital gains (including gains from stocks, real estate, etc.), and up to $3,000 in net capital losses can be deducted against ordinary income each year. You should still report losses on your tax return to claim this valuable deduction. Losses beyond $3,000 carry forward to future years.
Are Kalshi event contracts subject to wash sale rules?
No. Section 1256 contracts are exempt from the wash sale rule under IRC Section 1091. This means you can sell a losing Kalshi position to realize a tax loss and immediately re-enter the same or a substantially identical position without the loss being disallowed. This is a significant advantage over stocks and ETFs, where you must wait at least 31 days before repurchasing a similar position after realizing a loss.
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CFTC-regulated prediction market. Automatic 1099 tax reporting. Favorable 60/40 tax treatment on all gains.
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