Can You File as a Professional Gambler for Prediction Market Trading? Schedule C Explained
What professional gambler status does for prediction market traders: Schedule C, self-employment tax, the 90% limit from 2026, and when it beats casual gambling treatment.
OddsFile research·Updated Oct 31, 2026·5 min read
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You can only file as a professional gambler if two things are true: your prediction market trading is wagering at all, which the IRS hasn't said, and you do it full time, in good faith and regularly, to earn a living. Then you report on Schedule C rather than Schedule 1 and Schedule A. That removes the itemizing trap, but you still face the 90% limit from 2026, you can't show a net loss, and you may owe self-employment tax.
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.
The legal test
The standard comes from the Supreme Court's decision in Commissioner v. Groetzinger. Mr. Groetzinger bet on greyhound races for his own account, spending most of his time at it for most of a year. The Court held that if gambling is pursued "full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business."
That is a high bar. A second income, a side hustle after work or occasional large positions won't meet it. Facts that help: it's your main source of income, you work at it every day, and you keep business-like records. Facts that hurt: a full-time job, sporadic trading, and entertainment as a motive.
Whether a Kalshi or Polymarket trader is "gambling" at all is unsettled. Many practitioners treat event contracts as capital assets, and some contracts look much more like financial instruments than bets. See gambling vs capital gains for event contracts.
Casual vs professional
| Casual gambler | Professional gambler | |
|---|---|---|
| Winnings go on | Schedule 1, line 8b | Schedule C |
| Losses go on | Schedule A, itemizers only | Schedule C, against winnings |
| Needs to itemize? | Yes | No |
| Effect on AGI | Gross winnings raise AGI | Only the net raises AGI |
| 90% limit from 2026 | Yes | Yes |
| Net loss allowed? | No | No |
| Self-employment tax | No | Yes |
The 2025 Publication 525 says gambling as a trade or business is considered self-employment, and it says a professional gambler can't claim a loss on Schedule C in a loss year, even when expenses other than losses exceed gross gambling income.
The 90% limit applies because Section 165(d) doesn't distinguish between casual and professional gamblers. It allows 90% of wagering losses, only up to gains, and defines those losses to include otherwise allowable deductions incurred in carrying on the wagering transaction. For a professional, that sweeps ordinary business expenses into the same cap. The 2026 draft of Schedule A has a new line 17a for deductible gambling losses, and a checkbox if you reported gambling winnings on Schedule C or E, so the IRS is clearly building the new limit into its forms. Those are drafts and could change.
Worked example
A full-time trader who qualifies has this 2026 year:
| Line | Amount |
|---|---|
| Winning markets | $120,000 |
| Losing markets | −$100,000 |
| Data, hosting and other expenses | −$5,000 |
| Actual cash profit | $15,000 |
| Losses plus expenses | $105,000 |
| Allowed at 90% | $94,500 |
| Schedule C net profit | $25,500 |
Self-employment tax is 15.3% applied to 92.35% of net earnings, under Schedule SE: $25,500 × 92.35% × 15.3% is about $3,603. Half of that is deductible in figuring income tax. The Social Security part stops at the 2026 wage base of $184,500; Medicare doesn't.
Compare treatments on that same year, at 24%, assuming no other income interactions:
| Treatment | Taxable amount | Approximate federal tax |
|---|---|---|
| Capital (expenses not deductible for an investor) | $20,000 | $4,800 |
| Professional gambler | $25,500 | $6,120 income tax + $3,603 SE tax, less the benefit of the SE deduction |
| Casual gambler, itemizing | $120,000 − $90,000 = $30,000 | $7,200 |
| Casual gambler, standard deduction | $120,000 | $28,800 |
Professional status beats casual gambling by a lot if you don't itemize, and it can still lose to capital treatment. It is not a free upgrade.
What it costs beyond tax
- You can't create a loss. A losing year stays at zero and doesn't offset your other income, unlike the $3,000 capital loss deduction.
- The limit doesn't carry forward. The 10% you lose is gone.
- You lose capital character. No long-term rates, no carryforwards.
- You take a visible position. A Schedule C showing large gross gambling receipts says you're asserting business status, so keep your records in order.
Who should consider it
The best fit is someone who is clearly full time, trades mostly sports or other bet-like contracts, believes gambling is the right characterization, and would otherwise be stuck on Schedule 1 with no itemized benefit. If you believe your contracts are not wagers, this isn't your route. Look at trader tax status instead.
Nothing has tested this in court for event contracts. Groetzinger involved dog racing.
Records
The IRS expects an accurate diary or similar record of winnings and losses. For a Schedule C position, keep more:
- Per-market winnings and losses with dates
- A note of how you defined a "session" and why
- Business expenses with receipts
- Evidence of the time you spend: logs and calendars
Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment, no signup. It uses a per-market grouping for gambling estimates, which is one reasonable approach, not an official rule.
FAQ
Do professional gamblers avoid the 90% limit?
No. Section 165(d) has no exception for professionals.
Can I switch from casual to professional in a good year?
Status depends on what you did, not on the result. You can't pick it for the year you won.
Can I deduct my home office?
If you truly have a gambling business, ordinary business expenses may be allowable, but Section 165(d)(2) treats them as wagering losses, so they're limited by the same cap.
Do I need a business entity?
No. A professional gambler typically reports on Schedule C as an individual.
Software, not tax advice. We do not prepare or file tax returns. The IRS has not ruled on how prediction-market contracts are taxed; figures shown are estimates of possible treatments. Confirm your position with a qualified tax professional. Read the full disclaimer.
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