Form 8949 Guide for Polymarket Traders: Step-by-Step Instructions

Quick Overview: Form 8949 for Polymarket

For Polymarket traders, you'll typically use Part I of Form 8949 for short-term capital gains and losses (positions held for one year or less). Since most prediction markets resolve within days or months, nearly all your trades will be short-term.

Before You Start: Gather Your Information

Essential Data You'll Need:

• Description of property - The market question/event
• Date acquired - When you bought the position
• Date sold or disposed - When the market resolved
• Proceeds - Amount you received (if you won)
• Cost basis - Amount you paid for the position
• Gain or loss - The difference (proceeds minus basis)

Step-by-Step Instructions for Form 8949

Step 1: Choose the Correct Part and Box

For Polymarket trades, you'll use:

• Part I - Short-Term Capital Gains and Losses
• Box A - Short-term transactions reported on Form 1099-B showing basis was reported to the IRS
• Box B - Short-term transactions reported on Form 1099-B showing basis wasn't reported to the IRS
• Box C - Short-term transactions not reported on Form 1099-B (most common for Polymarket)

Step 2: Fill Out Each Transaction Row

Column (a) - Description of Property

Enter a brief description of the Polymarket bet. Examples:

• "POLYMARKET: BTC $100K BY 12/31"
• "POLYMARKET: 2024 ELECTION OUTCOME"
• "POLYMARKET: [Market ID or Question]"

Column (b) - Date Acquired

Enter the date you purchased the position (MM/DD/YYYY format)

Column (c) - Date Sold or Disposed

Enter the date the market resolved (MM/DD/YYYY format)

Column (d) - Proceeds

Enter the gross amount you received when the market resolved

• If you won: The payout amount
• If you lost: Enter $0.00

Column (e) - Cost or Other Basis

Enter the amount you paid for the position

Column (f) - Code(s) from Instructions

Usually left blank for standard Polymarket trades

Column (g) - Amount of Adjustment

Usually left blank unless you have wash sale adjustments

Column (h) - Gain or Loss

Calculate: Column (d) minus Column (e) plus Column (g)

Real Example: Filling Out Form 8949

Common Mistakes to Avoid

1. Wrong dates: Ensure you use the actual transaction dates, not the event dates. For example, if you bet on an election in October but it resolved in November, use those dates.
2. Missing trades: Report ALL trades, even small losses. The IRS can see blockchain transactions.
3. Incorrect basis: Include any fees in your cost basis. If you paid $100 for a position plus $2 in gas fees, your basis is $102.
4. Netting trades: Don't combine multiple trades into one line. Each position needs its own row.
5. Wrong form section: Use Part I for short-term trades (held less than 1 year), not Part II.

After Completing Form 8949

Transfer Totals to Schedule D

Once you've listed all trades on Form 8949, you'll:

1. Add up all gains and losses from Form 8949
2. Transfer these totals to Schedule D
3. Schedule D calculates your net capital gain or loss
4. This net amount flows to Form 1040

Tips for Efficient Form 8949 Completion

Special Situations

High-Volume Traders

If you have hundreds of trades, you may be able to attach a summary statement instead of listing each trade. Include columns matching Form 8949 and note "See attached statement" on the form.

Wash Sales

If you repurchase a substantially identical position within 30 days of a loss, wash sale rules may apply. This is less common with prediction markets but can occur with similar event bets.

Final Checklist

Conclusion

Filing Form 8949 for Polymarket trades doesn't have to be complicated. With proper record-keeping and attention to detail, you can accurately report your prediction market activity to the IRS. Remember, every trade counts, and accuracy is crucial for avoiding potential audits or penalties.