There is no getting away from the taxes if you win big at a Colorado casino or sportsbook. As in most states, you’ll need to pay income tax on that windfall. To balance this, you can deduct gambling losses — even if they come from a different form of gambling from your win. As you will see below, making your deductions “audit proof” requires some work.
With sports betting now in Colorado, many people will be hitting the 300x-their-bet threshold, which triggers a W2-G to be issued. A copy of this form will go to the IRS, making declaring it on your return mandatory. You’ll have to declare all wins, with the W2-G ensuring that bigger amounts are declared.
This page has you covered for state and local income taxes on gambling winnings in Colorado. There is also information on how the gambling businesses are taxed — and the good causes that Colorado gambling supports.
You should declare every cent won in all forms of gambling to the IRS on your yearly tax returns. This includes wins from casino games, lottery windfalls, sports betting, horse racing bets or skill games, including DFS contests.
Many people are under the impression that you only need to declare those wins reported on a W2-G form. These are issued by casinos and sportsbooks for wins over a certain threshold. Here are some key examples:
In some instances, the casinos will automatically withhold your taxes. This is required for betting wins over $5,000. You still need to report this on your tax return, though the tax will already be paid.
Simply collecting losing tickets or bet slips is not enough to offset your gambling losses. In the event of an audit, you will need to provide proof that all your wins are listed, and that all your losses were accurately recorded. This is hard to do, making rigorous record keeping very important.
A diary/log of your sessions, recording wins and losses, is a starting point. Where the game allows this, proof that you bought the tickets or participated in a game is the starting point for backup documents.
Keep in mind that you can only offset gambling losses against the tax you pay on gambling wins. The best outcome is that you cancel out any W2-G wins on your return.
Colorado has a flat state income tax of 4.63%. This replaced a tiered system, which had higher rates based on the amount you earned. You’ll need to have a similarly rigorous standard for reporting your wins/losses at the state level as you did at the federal level.
If you won money in another state — for example at a Las Vegas casino — then your state taxes will depend on what was already withheld. You won’t be double-taxed, as long as you can prove that this has already been paid in the state you won in.
You won’t be able to offset gambling losses against any other portion of your return than the gambling wins. As with the federal taxes, you are required to list (itemize) all losses and wins, not just those that triggered a W2-G to be issued.
It is not only individuals that pay tax on gambling profits in the Centennial State. The casinos at Central City, Black Hawk and Cripple Creek are subject to a gaming tax. The tribal casinos at Ute Mountain do not pay this.
The amount of taxes the casinos pay is based on gross profits (what they take in, minus what they pay to winners). This is tiered, with the marginal rate going up as the profits get bigger. Below, you will find the latest schedule of tax rates:
Sportsbooks are taxed at a flat rate of 10% of gross profits. This includes both the retail and mobile sportsbooks. With only gambling, you’ll have a perfect record of your wins and losses — which make it easy for individuals to itemize for tax return purposes.
Pari-Mutuel betting is also taxed, though at a lower rate. While there is no greyhound racing in Colorado after the 2014 ban, it is still possible to bet on dog races via simulcast. This is taxed at 4.5%. By contrast, horse race bets are taxed at just 0.75%.
The lottery has a profit margin built in. This is for good causes, and so not subject to additional taxation. Wins need to be reported by individuals.
While some gambling tax money finds its way to the treasury via regular tax returns, the money collected via the lottery and casinos is earmarked for good causes. Here are some of the organizations and initiatives that benefit from gambling revenues in Colorado:
With the recent addition of sports betting, Colorado now allows all major forms of gambling. There are 33 casinos, most of which are found in Black Hawk, Cripple Creek and Central City. These will open sportsbooks in 2020 to go with their slots, table games and (some) poker rooms. Online sports betting will also become available inside state lines.
You can also bet on horses in Colorado. This uses a pari-mutuel betting system and is possible online or at OTB offices via simulcast. Lottery draws take place, including several big-prize multi-state draws. Charitable gambling completes the list of gambling options.
Yes. Many people are under the impression that only big windfalls subject to a W2-G need to be reported. In fact, every win — however small — needs to find its way to your 1040 form for your annual tax return.
Note that you can only offset losses against reported gambling wins. If you did not have any wins, gambling losses in Colorado can’t be used to reduce your overall tax bill.
You need to be 21+ to gamble in Colorado. If you are using an online sportsbook to bet, you can only do this from within state lines.
If the casino you win at withholds some of your money and issues you a W2-G, then this withholding will include the federal and state tax payments. You should report this on your return as usual — noting the amount withheld.
If you don’t get part of your profits withheld, then you should report this as income on your return.
The W2-G form is used to report wins over a predetermined threshold to the IRS. It is the responsibility of the casino or sportsbook to issue this. It will collect your personal information, including your SSN, and you’ll need to sign the form.
W2-G forms can then be compared with wins declared on your tax return at the end of the tax year.
Colorado has similar tax laws to most states when it comes to gambling wins and losses. All wins are subject to both federal and state income taxes — not just those over the W2-G threshold.
While you can offset gambling losses on your tax returns, there are two key points to keep in mind. First, losses will only offset tax on your gambling wins, not for other forms of income. Second, there is a high bar in terms of the quality of documentation needed to prove gambling losses. You’ll need to keep a log, along with proof of purchase for bets/tickets whenever possible.
The good news for residents of Colorado is that gambling taxes support a lot of positive causes. These include maintaining the rich history of the Centennial State, helping the disadvantaged with education and even funding the next generations of innovative businesses.