Can You Write Off a Coworking Space?
Understand how to properly deduct your coworking space expenses. Learn the rules, documentation, and claiming process for tax purposes.
Coworking spaces offer flexible and collaborative environments that many businesses and independent professionals utilize. The expenses associated with these shared workspaces are generally deductible for tax purposes, provided they are incurred for legitimate business activities. This allows individuals and entities to reduce their taxable income by accounting for the costs of their operational workspace.
Qualifying Coworking Expenses
For an expense to be deductible, the Internal Revenue Service (IRS) requires it to be both “ordinary” and “necessary” for the business. An ordinary expense is common and accepted in a particular industry, while a necessary expense is helpful and appropriate for the trade or business, though not necessarily indispensable. This broad definition allows for various coworking costs to qualify.
Typical deductible coworking expenses include core membership fees, whether for a hot desk, a dedicated desk, or a private office within the shared space. Beyond the basic membership, additional services provided by the coworking space can also be deductible. These may include charges for meeting room rentals, internet access, printing and copying services, mail handling, and even receptionist services. However, not all expenses incurred while using a coworking space are deductible; personal meals, entertainment, or the cost of commuting to and from the coworking space are not deductible.
Documenting Your Coworking Expenses
Maintaining accurate and comprehensive records is essential to substantiate any coworking expense deductions. The IRS requires taxpayers to keep adequate records that clearly show income and expenses. These records serve as proof of the business purpose and the amounts spent.
Key documents to retain include invoices and receipts from the coworking space provider. Bank statements and credit card statements can also corroborate payments made for coworking expenses. For expenses exceeding $75, the IRS generally requires a written record that includes the amount, the business reason for the payment, the name and address of the payee, and the date of the payment. Organizing these records, whether digitally or physically, ensures they are readily available.
Claiming the Coworking Deduction
The method for claiming coworking deductions depends on the business structure. Self-employed individuals and sole proprietors typically report these expenses on Schedule C (Form 1040), Profit or Loss from Business. The core membership fees or rent for the coworking space are generally reported on Line 20, “Rent.” Other specific services, such as printing or meeting room rentals, may be reported on other relevant expense lines within Schedule C.
Businesses structured as partnerships file Form 1065. Deductible coworking expenses are listed in the deductions section of this form. Similarly, corporations file Form 1120 and report their ordinary and necessary business expenses, including coworking costs, in the deductions section. These forms allow businesses to offset their gross income with qualified expenses, reducing their overall taxable income.
Allocating for Personal Use
When a coworking space is used for both business and personal purposes, only the portion directly attributable to business use is deductible. It is important to accurately allocate expenses to avoid claiming personal costs as business deductions.
Allocation can be determined by various methods, such as the percentage of time the space is used for business activities versus personal use. For example, if a dedicated desk is used for business 80% of the time, then 80% of its cost would be deductible. Another method involves allocating based on the percentage of dedicated space used for business purposes. Maintaining detailed records, such as a log of business use, is important to support the calculated allocation.