Discussion:Income from Internet Prediction Markets
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Lexbrooklynae (talk|edits) said: | 18 June 2007 |
| I have a tricky question. I am a third year law student writing a paper on the tatxation of political prediction markets, like intrade.com or hedgestreet.com or the Iowa Electronic Market.
I was wondering if anyone had clients with such income and how did you go about reporting it, if at all? thanks, Philip Cleary philip [dot] cleary [at] brooklaw [dot]edu 917 916 4730 | |
| 18 June 2007 | |
| They appear to be businesses like any other. No hint of being tax-exempt, nor should they so qualify. | |
| 18 June 2007 | |
| Lex, why would you ask whether it should be reported at all? | |
Lexbrooklynae (talk|edits) said: | 18 June 2007 |
| Kevin,
I ask because my best friend asked me point blank "do i have to report income from winnings on intrade?" He thought foreign income (exchange based out of Dublin) was not taxable. Of course it is, but many clients might not know this. As to the other comment, so an accountant/tax preparer would/could treat this as business income? Let's say I only speculate on the online site once, earnings $100 for the year. Surely, I am not engaged in a Trade or business. Does anyone here think it is capital gain? I appreciate all input. | |
| 18 June 2007 | |
| You kind of phrased the question badly, making it sound as if you were asking about taxation of businesses similar to intrade. Income from transactions in these type of markets is probably gambling. ♫ | |
| 18 June 2007 | |
| These are really very basic tax prep questions. Most H&R Block graduates could answer them.
1) All US citizens and residents are taxed on their worldwide income from whatever source derived. 2) I'm not sure whether you are asking if the gambling is a business for the gambler, but for the business that takes the bet, it is indeed a business. Please look up the definition of business income vs. capital gain vs. ordinary income and you will see that it cannot be capital gain. | |
Lexbrooklynae (talk|edits) said: | 18 June 2007 |
| I think a speculator's income from contracts or binary options traded on intrade.com or hedgestreet.com could very well be capital gain, especially if the contract is based on financial data, like the price of gold at the end of the day. In fact, HedgeStreet advises its customers to fill out a form 6781 and claim the income should be treated under section 1256 (60% long term, 40% short term capital gain). This might be a very esoteric question, but does anyone have any clients who actually do that?
If the derivative is based on the outcome of political event, it would be harder to argue for capital gain. However, in a sense, this is a real investment. Others view it as gambling. I am trying to get a sense how this income is actually reported because there is very little guidance from the actual exchanges online. For example, Intrade will have nothing to do with the IRS. Perhaps it is gambling, perhaps it is hobby income, perhaps it is capital gain. I want to know if anyone has experience in dealing with this kind of income. Thanks again. | |
| 18 June 2007 | |
| Opptions traders on the NY Exchange devised a tradable set of contracts on the NCAA basketball tournament long before HedgeStreet.com existed. The logic that the nature of the income could change because you are buying someone else's bet rather than placing your own eludes me. | |
| 18 June 2007 | |
| Apparently my post left some confusion. The options traders referenced were gambling. They knew they were gambling. This was an internal market just between co-workers. It is possible that income was reported, but as unlikely as any other office pool. | |
