How Coworking Space Impacts Your Taxes

Juliet D'cruz

Updated on:

Working remotely has its upsides. And given that coworking spaces keep popping up everywhere, it has become easier than ever to find a place to set up shop outside the traditional office. What’s more, you could even become a member of the best coworking office space franchise.

Whether you’re a seasoned entrepreneur or still testing the waters, it helps to know how your office space impacts your taxes. For the most part, coworking spaces are treated the same as any other commercial lease regarding business taxes. That said, coworking can help you save on taxes. Here’s how: 

Business Expense

Generally, you can deduct your coworking expenses come tax time. The Internal Revenue Service(IRS) considers coworking expenses as business expenses, which means they are deductible from your taxes as long as you itemize them.

But as far as taxes go, there are two types of coworking spaces: those that are part of your office and spaces separate from your workspace. Thus, if your space is considered part of your office, any membership dues or expenses related to the space are tax deductible. This includes things like rent, furniture, internet, and utilities.

Conversely, if your coworking space is separate from your office, you can deduct a portion of your expenses based on the percentage of the area you use for business purposes. For example, if you use a shared desk in a coworking space for 50% of your work week, you can deduct 50% of your membership fees as a business expense.

There are a few different ways to deduct coworking expenses, depending on the structure of your space and what type of membership you have. For example, if you have a dedicated desk at a coworking space, you can deduct the cost of that membership as a business expense. This is true whether you pay for a month-to-month membership or pre-pay for an extended period. And if you occasionally use a coworking space, you can deduct the cost of day passes or hourly rates.

Still, if you rent a meeting room once in a while, your expenses are part of your office-related costs and are deductible. The same goes for any business services you purchase from a coworking space, like internet or printing.

You may also deduct any associated costs, such as parking or transportation costs. Similarly, the price of a coffee or other refreshments purchased at your coworking space is deductible. But there’s a catch!

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What You Need to Know About Food

Usually, food is one of the most significant expenses for any business, but it’s something many coworking spaces include in membership fees. This way, you can reduce your overhead costs and hopefully attract and retain employees. Some facilities even have on-site restaurants or cafés, reducing food expenses further.

That said, if your meals are an out-of-pocket expense, it’s usually non-tax deductible. However, the cost is tax-deductible if you’re conducting a networking event and providing food for attendees. So, don’t toss that receipt, as it could come in handy when tax season rolls around.

Deductible Amount 

Ideally, deductions reduce your taxable income, which in turn lowers the amount of taxes you owe. Typically, business deductions fall into two categories, namely:

  • Standard deductions: This is the set amount businesses can deduct from their taxable income.
  • Itemized deductions: You can itemize your business’ expenses and deduct those instead. This usually results in a more significant deduction, but tracking the costs and receipts tends to be more work.

So, do you know how much you can deduct? The answer depends on how you use the coworking space. If you use the space solely for business purposes, you can deduct the entire amount of your membership fees. However, if you also use the space for personal reasons, or if you work from home a few days a week to avoid a long commute – you can only deduct a portion of the fee.

The IRS has a ‘safe harbor’ rule that allows you to deduct up to $5 per square foot of office space, up to 300 square feet. If your coworking space is 200 square feet, you can deduct $1,000 per year (that is 200 x $5). If it’s 300 square feet, your deductible amount equals $1,500 annually.

To avoid overcomplicating the math, consult your tax professional. They can advise you on your deductible amount. All the same, by claiming everything ‘allowable’ under the law, you can reduce your taxable income. After all, you work hard enough and don’t have to leave money on the table. The lower your taxes, the better, right?

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