QastLedger
Prediction market traders often end up with more tax forms than they expected. Three forms do the work, and knowing what each one is for makes the whole return easier to check.
The short version
| Form | What goes on it | Who needs it |
|---|---|---|
| Form 6781 | Section 1256 contracts, taxed 60% long-term and 40% short-term | Most Kalshi traders, plus any Polymarket positions you treat as 60/40 |
| Form 8949 | Ordinary capital gains and losses, one line per sale | Anyone with positions not treated as Section 1256, such as short-term Polymarket trades |
| Schedule D | The summary that combines both forms into one net number | Everyone with any capital gain or loss |
Form 6781: Section 1256 contracts
Form 6781 is where Section 1256 gains and losses go. For many prediction market traders that means Kalshi. You report your net result, and the form splits it: 40% becomes short-term and 60% becomes long-term, regardless of how long you held each contract.
Form 6781 also includes positions still open at year end, valued at their market price on the last business day of the year. This is the mark-to-market rule explained in our Kalshi tax guide.
From Form 6781, the short-term share goes to Schedule D line 4 and the long-term share goes to Schedule D line 11.
Form 8949: everything else
Form 8949 lists capital asset sales one at a time: what you sold, when you bought and sold it, proceeds, cost and gain or loss. It has two parts:
- Part I for short-term positions, held one year or less.
- Part II for long-term positions, held more than one year.
Section 1256 contracts skip Form 8949 entirely. A trader who only uses Kalshi and treats everything as Section 1256 may not need Form 8949 at all. Polymarket trades under standard holding-period treatment go here. See our Polymarket tax guide for how to choose.
Schedule D: where it all comes together
Schedule D collects the totals from Form 8949 and the 60/40 split from Form 6781. It adds short-term and long-term results separately, then combines them into one net capital gain or loss on line 16. That figure flows to your Form 1040.
A net capital loss can offset up to $3,000 of other income per year ($1,500 if married filing separately), and any excess carries forward to future years.
Checking your numbers
Before you file, make sure of three things:
- Every closed position appears once, on either Form 6781 or Form 8949, never both.
- Fees are removed from every position, so you aren't overstating gains.
- Open Section 1256 positions have a year-end price, so they're included on Form 6781.
This guide is general information, not tax advice. Tax treatment of event contracts is still evolving, so confirm how it applies to you with a tax professional.