Ordinary Income

The ordinary income method is the simplest and most conservative way to report prediction market profits. Your net P&L is reported as "other income" on Schedule 1, Line 8z and taxed at your marginal income tax rate.

How it works

1. Calculate your net P&L across all platforms
2. Report the net amount on Schedule 1, Line 8z as "Prediction market income"
3. The amount flows to Form 1040 and is taxed at your marginal rate

Advantages

• Simplest filing: One number on one line, no Form 8949 or position-level detail
• Most conservative: Unlikely to be challenged by the IRS
• Net reporting: Losses automatically offset gains

Disadvantages

• No long-term rates: Everything is taxed at ordinary income rates
• Limited loss deduction: If you have a net loss, the deduction rules are less clear than capital gains (no guaranteed $3,000 annual deduction)
• No 60/40 split: Unlike Section 1256, no portion gets long-term rates

Best for

Traders with small numbers of trades, modest profits, and who want the simplest possible filing. Also good for traders on unregulated platforms (Polymarket) where more aggressive methods are harder to defend.