Should You Trade Polymarket or Kalshi Through an LLC? What It Does for Taxes

For most traders, an LLC changes nothing about tax. A single-member LLC is disregarded by default, so its gains and losses land on your own return exactly as they would without it. It doesn't turn winnings into capital gains, it doesn't get around the 90% gambling loss limit, and it doesn't make personal expenses deductible. An entity can make sense in a few cases, such as partners pooling money, but tax savings alone are rarely the reason.

OddsFile is software, not tax advice. The IRS has not issued guidance on how prediction-market contracts are taxed. This article explains the options and the sources behind them; a tax professional can tell you which position fits your situation.

What each structure does

The IRS says a single-member LLC, by default, is "disregarded as separate from its owner." If the LLC trades on Kalshi, those trades are yours for income tax.

What an LLC doesn't do

It doesn't decide the classification. Whether an event contract is a capital asset or a wager has nothing to do with who holds it. An LLC can't turn a bet into an investment.

It doesn't avoid the 90% limit. Section 165(d) applies to wagering losses regardless. Partnerships pass items through, so the limit reaches the owners in substance, though the mechanics are for your preparer.

It doesn't create a business. Investment activity in an LLC is still investment activity. Only real trader status opens up Schedule C expenses. The test looks at your activity, and an LLC doesn't count toward it. An investor with an LLC still has non-deductible investment expenses.

It doesn't escape self-employment tax. If you truly run a business, the IRS says a single-member LLC's owner pays self-employment tax on net earnings, the same way a sole proprietor does. See self-employment tax and the NIIT.

It doesn't reduce reporting. A digital asset question appears on partnership and corporate returns as well.

What an entity can do

• Pool capital with partners. Two or more people trading together need a way to split results. A partnership's Form 1065 and K-1s do that. If friends pool money informally, one person may be stuck reporting everything.
• Separate records. A dedicated account makes bookkeeping easier. This helps prove your position, but a separate personal account does the same for far less money.
• Support a business claim. It won't make you a trader, but a separate account and books can make your real business easier to show.
• Limit some liability. That's a legal question for business risks, and it doesn't protect against trading losses you agreed to. Ask a lawyer.

C corporation and S corporation

A corporate election changes the picture, usually not in your favor for small trading activity.

A corporation isn't a way to avoid personal tax on a trading account. It's a structural decision to make with a professional.

Costs

Forming an LLC costs money, and many states charge ongoing fees or taxes on top. Check your state's filing office for current amounts. Add a partnership return, and you may pay for a professional return every year. If your trading is small, the cost can easily exceed any benefit.

Can you open a venue account as an LLC?

That depends on the venue. Kalshi, Robinhood and others have their own account rules for entities. Check before forming anything. Polymarket's on-chain exchange has no account in the traditional sense, but an LLC that holds a wallet needs to treat it as the LLC's own, with clean records. Moving funds back and forth between a personal wallet and an LLC wallet with no records makes a mess of basis.

Worked example

Sam trades alone and earns $40,000 of net short-term gains. He forms a single-member LLC, pays formation and annual fees, and has it trade.

Now Jo and Lee pool $100,000 and split profits 60/40. Without an entity, one of them may be the account holder and report everything, and then needs a way to allocate. With a partnership, each reports a K-1. Here an entity solves a real problem.

What to do instead

1. Keep a dedicated bank account and wallet for trading.
2. Pick your treatment and write it down.
3. Track fees and real expenses.
4. Test whether your activity is a business before you form anything.
5. Talk to a preparer if you trade with others, or if you're moving serious money.

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment, no signup. If the numbers justify a structure, your preparer will want these results anyway. For the treatment choice itself, read gambling vs capital gains for event contracts.

FAQ

Does an LLC turn gambling winnings into business income?

No. A label doesn't change what the income is. Only real business activity counts, and gambling losses stay limited.

Do I need an LLC for trader tax status?

No. Trader status depends on your activity.

Can an LLC deduct my losses without limit?

No. A single-member LLC flows to your return, with the same limits.

Does an LLC hide my wallet from the IRS?

No, and that's not a legitimate purpose. Income must be reported either way.