How do I correctly report IBKR 1099-MISC income from prediction contracts with cost basis adjustment?

This is actually a common issue with 1099-MISC forms from brokers who offer prediction markets or similar contract trading. You're right to be concerned, but there is a proper way to handle this. You'll need to report the full amount shown on your 1099-MISC on Schedule 1, Line 8 (Other Income). Then, you'll subtract your cost basis ($22,350 in your case) by reporting it as a negative amount on a separate line of Schedule 1, also as Other Income. Make sure to clearly label it as "COST BASIS ADJUSTMENT FOR PREDICTION CONTRACTS - INTERACTIVE BROKERS" or something similar. This way, you're reporting exactly what's on your 1099-MISC (so it matches what the IRS receives from IBKR), but you're also properly adjusting for your actual economic gain. The key is documentation - keep all your IBKR statements showing the initial investment and the subsequent proceeds.

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Following up on my question about taxr.ai - I decided to try it with my complicated IBKR situation (I had 14 different prediction contract trades last year). Seriously impressed with how it handled everything! It created a detailed spreadsheet showing each transaction, the reported 1099 amount, my cost basis, and the correct net profit. Even better, it generated a PDF attachment I could include with my return that explained why my reported income differed from the 1099-MISC amounts. The explanation referenced the relevant tax codes and IBKR's reporting limitations. My accountant was actually relieved to have this documentation and said it was exactly what we needed to avoid problems. Much better solution than I expected!

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There's another option nobody's mentioned. You can report the full amount on Schedule C as business income and then deduct your costs as business expenses. That's what my accountant did for me last year with similar contracts. He said it was cleaner than trying to explain adjustments on Schedule 1.

Has anyone used TurboTax to handle this specific situation? I use TurboTax Premier and am wondering if it has a way to handle this properly.

I went through this exact same situation with IBKR prediction contracts last year and can confirm the Schedule 1 approach works perfectly. The key is being very clear in your documentation. I reported the full $23,000 on Schedule 1, Line 8i "Other Income" with the description "IBKR 1099-MISC Prediction Contract Proceeds." Then on the very next line, I entered -$22,350 with the description "Cost Basis Adjustment - IBKR Prediction Contracts per 1099-MISC Instructions." I also attached a one-page statement explaining that IBKR reports gross proceeds on 1099-MISC but doesn't account for cost basis, referencing their own documentation that instructs taxpayers to make this adjustment. No red flags, no audit, no problems. The IRS computers can easily see that you're reporting what matches the 1099 they received while properly calculating your actual taxable gain. Keep all your IBKR statements showing the initial purchase and final sale amounts. This is actually a very common issue with prediction market brokers, so the IRS is familiar with it.