Is Coworking Space Tax Deductible?

A coworking space provides a flexible, shared work environment for individuals and businesses, offering amenities that support professional activities without the overhead of a traditional office. For many self-employed individuals and business owners, the expenses associated with using these spaces are generally tax deductible, provided they meet specific criteria set forth by the Internal Revenue Service (IRS). Understanding these conditions is important for maximizing potential tax savings.

Qualifying Coworking Space Expenses

To qualify as a tax deduction, a business expense must be both “ordinary” and “necessary” according to IRS guidelines. An ordinary expense is one that is common and accepted in your trade or business, while a necessary expense is helpful and appropriate for your business, though not indispensable. Coworking space fees meet these criteria for eligible businesses, as they represent a common and appropriate cost for conducting business operations.

For sole proprietors, freelancers, independent contractors, and single-member Limited Liability Companies (LLCs) taxed as sole proprietorships, coworking space costs are deductible business expenses. These individuals can deduct the full amount of their paid membership or rental fees if the space is used exclusively for business purposes. Small businesses and multi-member LLCs taxed as partnerships or corporations can deduct these costs as a legitimate business expense. W-2 employees cannot deduct coworking space expenses on their personal tax returns unless their employer directly pays for or reimburses these costs as a business expense.

The key distinction for deductibility lies in the use of the space: it must be for business activities. If a coworking space is used for both business and personal purposes, only the portion directly attributable to business use can be deducted. This means personal activities within the coworking space are not deductible.

Specific Deductible Components

Many elements included in a coworking membership or usage fee can be tax deductible. The core membership fees or rent paid for a desk, private office, or general access are fully deductible business expenses. This includes regular monthly or annual fees, as well as day passes. These costs are considered akin to renting traditional office space.

Beyond the primary rental costs, various additional services and amenities provided by coworking spaces are also deductible. These include utilities, high-speed internet access, and the use of office equipment like printers and scanners. Fees for renting conference rooms for client meetings or team collaborations are deductible. Certain administrative services, such as mail handling or virtual receptionist services, are deductible.

Not all amenities provided by a coworking space are deductible. Personal expenses, such as the cost of daily coffee, snacks, or gym access, are not deductible. Meals with clients or colleagues where legitimate business is discussed may be 50% deductible, but personal meals are not. Commuting costs from your home to the coworking space are personal commuting expenses and are not deductible.

Claiming Your Deduction and Record Keeping

The method for claiming your coworking space deduction depends on your business structure. Sole proprietors and single-member LLCs, which are taxed as sole proprietorships, report their business income and expenses on Schedule C (Form 1040). The coworking space costs are listed under “Rent or lease” expenses on this form. Partnerships file Form 1065, while corporations (including S corporations) file Form 1120 or Form 1120-S to report their business expenses.

Thorough record-keeping is essential to substantiate claimed deductions and for potential IRS inquiries. The IRS requires taxpayers to maintain adequate records that establish the elements of each business expense. This includes keeping detailed records such as invoices, receipts, and coworking agreements that clearly show the amount, date, and business purpose of each expense.

Retain bank statements and credit card statements that reflect these payments as proof of payment. If the space is used for both business and personal activities, logs or calendars demonstrating the business use should be maintained to justify the deductible portion. Business tax records should be kept for at least three years from the date you file your return, which aligns with the IRS’s standard audit period.