Nobody's favorite topic, but if you're making money on Kalshi, you need to understand how it's taxed. The short version: Kalshi gains are taxable, the rules are evolving, and good record-keeping now prevents headaches later.
Disclaimer: This is educational content, not tax advice. Consult a tax professional for your specific situation.
How Kalshi Reports Your Income
Kalshi issues 1099 forms to US traders who meet reporting thresholds. The specific form and treatment depend on how the IRS classifies prediction market contracts.
As a CFTC-regulated exchange, Kalshi contracts are classified as regulated futures contracts, which may qualify for Section 1256 treatment — the same favorable tax treatment that applies to CME futures.
Section 1256: The 60/40 Rule
If Kalshi contracts qualify as Section 1256 contracts (and there's strong legal basis for this given CFTC regulation), your gains are taxed as:
- 60% long-term capital gains (lower tax rate)
- 40% short-term capital gains (ordinary income rate)
This applies regardless of how long you held the contract. Even a contract you held for 5 minutes gets the 60/40 split. For most traders, this is significantly better than ordinary income tax rates.
Record Keeping
Regardless of how contracts are ultimately classified, keep records of:
- Every trade (entry date, exit date, ticker, price, quantity, P&L)
- Total deposits and withdrawals
- Net gains/losses by tax year
- Any 1099 forms Kalshi sends you
If you're running bots, your trading activity log IS your tax record. Export it regularly.
Common Mistakes
- Not reporting at all. Kalshi reports to the IRS. If you don't report, it'll get flagged.
- Treating it as gambling losses. Prediction market contracts are financial instruments, not casino wagers. The tax treatment is different.
- Poor record keeping. If you trade 500 contracts a year, you need organized records. Don't wait until April to figure it out.
- Ignoring state taxes. Some states have their own treatment of prediction market gains.
Deductions
If you're trading as a business (or can make the mark-to-market election), you may be able to deduct:
- Data subscriptions and research costs
- Software and hosting for trading bots
- Bot for Kalshi subscription fees
- Home office (if applicable)
Again: consult a tax professional, especially if your Kalshi trading generates significant income.
Keep Clean Records with Bot for Kalshi
Every bot trade is logged with full details — making tax time painless.
Free office hours with the founders
Drop in Mon, Tue & Wed at 9 AM Pacific — we'll help you build and run your Kalshi bots, live. Everyone welcome, no registration.
See office hours →Can't make 9 AM? Book a free 1:1 instead.