It’s not true that you can’t pay negative taxes on your betting market losses, at least if you are someone who uses prediction markets routinely. You are allowed to deduct your gross gambling losses from your gambling gains, and you only pay tax on the net gain. Seehttps://www.irs.gov/pub/irs-news/at-02-53.pdf.
Only if you itemize rather than taking the standard deduction!
For example, suppose you purchase a binary contract that pays $1 if an event occurs (and $0 if it doesn’t) and you believe there’s a 50% chance of the event. If you win, you receive $1 in gross winnings. With a 30% marginal tax rate and without itemizing, you’d pay tax on the full $1—leaving you with a net of $0.70. Given that you paid some amount x for the contract, your net gain on a win is $0.70−x, while a loss means you lose the entire x.
To break even, the expected value of the bet must be zero:
0.5×(0.70−x)+0.5×(−x)=0
This simplifies to:
0.35−x=0⟹x=0.35
Thus, if you believe the event is 50% likely (and considering only taxation, not other factors like transaction fees or opportunity costs), you would only gain if you paid under $0.35 for the contract.
It’s not true that you can’t pay negative taxes on your betting market losses, at least if you are someone who uses prediction markets routinely. You are allowed to deduct your gross gambling losses from your gambling gains, and you only pay tax on the net gain. See https://www.irs.gov/pub/irs-news/at-02-53.pdf.
Only if you itemize rather than taking the standard deduction!
For example, suppose you purchase a binary contract that pays $1 if an event occurs (and $0 if it doesn’t) and you believe there’s a 50% chance of the event. If you win, you receive $1 in gross winnings. With a 30% marginal tax rate and without itemizing, you’d pay tax on the full $1—leaving you with a net of $0.70. Given that you paid some amount x for the contract, your net gain on a win is $0.70−x, while a loss means you lose the entire x.
To break even, the expected value of the bet must be zero:
0.5×(0.70−x)+0.5×(−x)=0
This simplifies to:
0.35−x=0⟹x=0.35
Thus, if you believe the event is 50% likely (and considering only taxation, not other factors like transaction fees or opportunity costs), you would only gain if you paid under $0.35 for the contract.