No matter your job, how much you earn or what your tax situation looks like, it’s important to make sure you’re filing each year with full confidence. Part of filing your taxes completely and to the best of your abilities is to research and make the most of any tax deductions available to you.
If you’ve spent time in a coworking space in the past year and incurred membership or drop-in expenses, you may be in luck. In certain situations, using a coworking space is tax deductible! But how do you know if you can deduct coworking space, and any other associated expenses, from your income tax this year?
Read on to learn all the major coworking tax benefits you need to know.
Deducting coworking memberships
Coworking memberships are tax deductible, but only if you’re performing work as an independent contractor (like a 1099 employee or freelancer).
If you’re a W2 employee, you can’t deduct a coworking membership on your taxes, since you’re unable to deduct business expenses. In this situation, you’ll need to convince your employer to either pay for your memberships or to reimburse you for them.
If you’re an employer and you purchase coworking memberships or day passes for you and/or your employees, you can deduct these expenses from your taxes. It’s much like renting traditional office space or subscribing to business services your employees rely on to get work done. It’s an expense that goes toward running your business, so you can deduct it.
Claiming coworking membership costs is very straightforward if you’re eligible to do so. Whether you’re a freelancer, independent contractor, sole proprietor or any other business entity, you can write off coworking costs on Schedule C forms.
Claiming home office space
Lots of freelancers work from a home office, which they’re eligible to deduct on their taxes. If you maintain a membership to a coworking space however, you’re ineligible to claim a home office deduction. To qualify for this tax incentive, your home office must be your primary place of business. If you spend the majority of your workdays in a coworking space, you’d claim your coworking expenses rather than a home office deduction.
In a special case, if you mostly work from home and maintain a coworking membership only to make use of flexible meeting space, you may be able to claim deductions on both your home office and your coworking membership. Just be prepared to prove that you use both for their intended purposes in case of an audit.
Deducting conference room rentals
Many people use coworking venues as flexible space for conferences. If you rented a conference room in 2022 and held a business meeting there, your costs are valid business expenses and can be deducted on your taxes.
Remember that there’s a tax difference between deducting meeting spaces like conference rooms and deducting coworking spaces. The meeting room should be a space you’re using for a specific purpose, for a limited period of time.
Deducting coworking mileage and parking expenses
Unfortunately, just like you can’t deduct the cost of parking at your place of business, you can’t deduct coworking parking expenses from your taxable income. Any parking fees you incur throughout the year are considered commuting costs, and these costs generally aren’t deductible. You can only claim them if you’re visiting a client at another location or are on a business trip away from your home base.
If parking costs are a concern, look for a coworking space that either has access to free parking or includes free parking in the price of a monthly membership or day pass.
The same goes for mileage. In general, you can’t deduct mileage you accrue as you drive to and from a coworking space. Again, this is considered a commuting expense. If you’re on a business trip, like a commute from a coworking space to meet a client, you can deduct that mileage from your taxable income.
Deducting the cost of networking events
There are multiple tax rules that can come into play if you want to claim networking events on your taxes. Whenever you attend an event on your own and incur expenses, you can often take a deduction if your goal in attending is to get more clients or continue your education.
If you host an event, consider entertainment expense deduction rules. In most cases, the costs you incur for providing for food and drink are only 50% deductible. Fun and games, like activities or event tickets, generally aren’t deductible, but if you’re hosting a seminar, workshop or class, the expenses you incur to provide them are typically fully deductible.
Rules regarding coworking spaces
In general, the IRS lets you pick any coworking space you want if you wish to deduct the expenses on your taxes (and if you’re eligible to do so). Whether you’re rolling up your sleeves in a franchised coworking space or you’re getting ready to work in a boutique space near you doesn’t matter. What’s important is that you’re working in an actual office space, independently or with a group.
When it comes to claiming coworking space on your taxes, there are two common areas where filers may run into trouble:
Some entrepreneurs who own coworking space rent it to themselves. Unfortunately, these expenses cannot be deducted from your taxable income, even if you charge yourself rent. If you rent to yourself and claim the expenses on your taxes, it can complicate your filing. Always talk to a reputable accountant before doing this.
Workers use coworking space for a variety of reasons, and if office space isn’t the main purpose of the rental, you could be getting into murky territory with the IRS. If you want to deduct your expenses, you need to use your coworking space primarily for conducting business.
Make the most of your coworking tax deduction this year
If you’re an independent contractor, freelancer, sole proprietor or other business entity paid on a 1099, you could be eligible to deduct coworking expenses you’ve accrued throughout the previous year on your taxes. This is a great incentive for remote workers looking for a modern, comfortable place to work, as well as networking with like minded colleagues.
Discuss your situation with your personal accountant to learn more about coworking tax deductions and other incentives you may qualify for.
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