Tax Center
What Bettors Get Wrong About Taxes
By Owen Monagan ·
Most bettors get one thing wrong above all else: they assume that if no sportsbook or exchange sent them a tax form, they have nothing to report. That is the single most common mistake we heard in interviews — and it is backwards. In the U.S., betting and trading gains are taxable income whether or not a 1099 ever shows up. The form is a convenience, not the trigger.
This guide walks through the mistakes that come up again and again, drawn from conversations with real sports bettors and prediction-market traders. It is information, not tax advice — and the treatment of prediction-market event contracts is an evolving area — so confirm your own situation with a qualified professional before filing.
Do I have to report betting income if I never got a 1099?
Yes. This is the misconception that costs people the most, and it was strikingly consistent in our interviews. Several traders told us they simply hadn't filed the betting portion of their taxes because no form arrived. One described checking a sportsbook, seeing a notification about a form, going to look — and finding it wasn't there, so they concluded there was nothing to do. Another said plainly they'd "only file if they sent it to me."
The reporting obligation does not work that way. The U.S. taxes income "from whatever source derived," and a 1099 is just one way activity gets reported to the IRS — not the thing that creates the duty to report. If you have a net gain, it generally belongs on your return whether or not a form arrives, and whether or not the activity was spread across a dozen books. For background on how the IRS treats winnings and wagering income, see the IRS topic on gambling income and losses. For the prediction-market version of this question, see our guide on whether Kalshi winnings are taxable.
Am I only taxed when I withdraw my winnings?
No — but this one came up with real confidence. One bettor told us they figured they "didn't get taxed because you weren't withdrawing" large sums, as if money sitting in an app balance is invisible to the IRS. Another deliberately left a big balance parked in an account partly to put off the tax.
Gains are generally taxable when they are realized, not when you transfer cash to your bank. Moving money to your checking account is not the taxable event; the gain is. Treating withdrawals as the trigger can leave you under-reporting a year where you won but never cashed out.
Why does record-keeping matter so much?
Because the records a correct return depends on are exactly the ones people let lapse. When we asked bettors how they track, the pattern was almost universal: a hand-built spreadsheet, a third-party tracker, or "I just check my bet slips." And almost as universally, the system breaks down. One trader described falling a week behind, then logging bets imprecisely just to catch up — losing detail right when it matters. Several tried a tracker, found it wouldn't reliably sync their books, switched to manual entry, and then, in one bettor's words, "forgot to track them and just didn't bother." Another estimated a busy week could mean ten hours of spreadsheet work, which is exactly why the record decays as stakes rise.
The fix is to stop maintaining the record by hand. The cleanest source is a full export of your activity straight from each platform — every trade, settlement, deposit, and withdrawal — so the numbers are complete and reconciled rather than reconstructed from memory at filing time. Keep, at minimum:
- A full export of your trade and settlement history for each year,
- Year-end balances and any tax forms the platform issues, and
- Records of deposits and withdrawals.
Can I deduct my losses — and could a losing year actually help me?
This is the biggest piece of money left on the table, and almost no one we spoke to understood it. A few bettors had a rough sense that losses offset winnings, but couldn't articulate the rules; two separately brought up a coming change to how gambling losses are deducted, both admitting they'd "misquote it." They were right that something changed: starting with tax year 2026, the One Big Beautiful Bill Act limits the deduction for gambling losses to 90% of those losses, so a break-even bettor can owe tax on income they never kept. This is a real, in-force rule — we cover it in detail in our guide on the OBBBA 90% gambling-loss limit (and yes, confirm how it hits your situation with a professional). What didn't come up from a single bettor, unprompted, is the more valuable idea: under some treatments, a losing year can actually reduce your taxes.
How losses can be used depends entirely on how the income is characterized:
| Possible treatment | How gains are taxed | How losses can be used |
|---|---|---|
| Section 1256 contracts | Blended 60% long / 40% short capital | Offset capital gains; a residual up to $3,000 of ordinary income, with the rest carried forward — and a limited 3-year carryback election may apply |
| Ordinary capital gain/loss | Short- or long-term capital rates | Offset capital gains, then up to $3,000 of ordinary income, with the rest carried forward |
| Gambling winnings | Ordinary income at your marginal rate | Deductible only up to winnings, and only if you itemize |
Under a gambling framework, losses are tightly capped. Under a derivatives or capital framework, they can offset other gains and a limited amount of ordinary income — so the same losing year has very different tax value. Whether Section 1256 treatment applies to event contracts is not settled, and we don't claim it does for your trades; we flag it as the most-discussed possibility and a question for your tax professional. The relevant form, if that treatment applies, is Form 6781.
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Is it a problem to just hand everything to a family CPA?
Not on its own — but it's only as good as the records you give them. A striking number of bettors told us they hand their taxes to a parent, a cousin, or "a person who does it," and couldn't describe what actually happens. One interviewer noted the pattern recurs constantly: "everybody gets their CPA from their parents." That's fine, but a preparer can only work from what you assemble — and as the record-keeping section above shows, what people manage to assemble is often incomplete.
The takeaway isn't "do it yourself." It's that clean, complete source data is what makes the hand-off work. If your accountant is reconstructing a fragmented year from partial screenshots, you may be over-reporting gains, under-claiming losses, or both.
The bottom line
The mistakes are consistent: assuming no form means no obligation, thinking only withdrawals are taxed, letting records lapse, and never learning that losses can have real tax value. None of these require deep expertise to avoid — they require complete records and a clear picture of your year. Keep full exports from every platform, understand that you report gains regardless of forms, and talk to a tax professional about how your specific activity should be characterized. For the bigger picture, start at the Prediction Market Tax Center.