You can claim a shared office deduction on your taxes when you file an itemized tax return and write off individual business expenses.
Filing taxes as a business owner means you’re sometimes entitled to special benefits, including tax write-offs for certain business expenses. The cost of a shared office, virtual office or coworking space may be available to be deducted from your business taxes, but each situation is unique.
As such, you’re encouraged to speak with a certified public accountant (CPA) or tax attorney who specializes in business taxes to ensure you receive the right legal guidance for your situation. Below, you’ll learn more about who is eligible to write off shared office expenses and how the Internal Revenue Service (IRS) views these deductions.
What’s a Shared Office Deduction Going to Do to Your Business Tax Obligations?
A shared office deduction is a tax write-off that business owners may be able to include when putting together and filing their tax returns each year. The IRS offers some business owners the ability to reduce their taxable income by deducting certain business expenses. The cost of your shared office can usually be considered a business expense, and therefore, it can be used to reduce your taxable income.
It should be noted that not all office arrangements can be counted as business expenses. The IRS has rules for what constitutes an office and what does not. Furthermore, your business venture must generate a certain amount of income within a specific period of time in order to be considered a business.
If your efforts do not generate income after a while, the IRS will consider your work a hobby. You cannot write off expenses for hobbies on your taxes, so if your business venture hasn’t generated the required income for the tax year in question, you may not be able to write off your shared office expenses.
To get specific figures for income requirements to be considered a business and to learn what tax deductions are available for shared office expenses, you need to contact the IRS. Tax laws in the United States can change from year to year, and existing data on the Internet does not necessarily hold true for previous years’ tax returns or upcoming tax filings. You are always encouraged to consult a tax professional for the latest information and personalized guidance.
Is Your Coworking Membership Tax Deductible for All Types of Businesses?
A coworking membership may be tax-deductible if it is considered a business expense. The IRS has rules about what is or is not considered a business expense, so you will want to review the latest tax code updates to make sure your tax return and deductions comply with current tax laws.
As an aside, the IRS offers a Standard Deduction to most taxpayers. This deduction doesn’t apply to businesses, but it can apply to you as a business owner if your company is a registered limited liability corporation (LLC) or other pass-through entity. Operating a pass-through LLC means that you pay taxes for the business on your personal federal tax return.
If you accept the Standard Deduction, you cannot itemize deductions through a Schedule C form. It usually only makes financial sense to choose itemization if your itemized deductions will be greater than the Standard Deduction. The Standard Deduction can also change over the course of different years, so you will want to check with the IRS or a tax professional to learn what the Standard Deduction is for the current year. This will help you figure out whether itemizing deductions like your shared office makes financial sense.
Some of the Top Benefits of Claiming Shared Office Deduction Write-Offs
The largest benefit of claiming a shared office deduction for most business owners is that this deduction reduces your taxable income. In the United States, the IRS requires a percentage of your income to be paid in taxes each year. This is an income tax, and the tax bracket you fall into is based on your level of income. Those with higher incomes usually face higher taxes as the percentage of their income due in taxes goes up as they move into higher tax brackets.
When you claim a shared office deduction, you can reduce your taxable income by the amount allowed under current tax law. This reduction may be enough to lower your income to the point of being placed into a lower tax bracket, thereby requiring less money to be paid in taxes. This is especially true when you claim the shared office tax deduction along with other itemized deductions for additional business expenses.
In fact, some businesses end up paying no taxes because they are able to write off enough expenses to reduce the owed tax to zero. Once again, you should consult with a tax professional as tax laws can change each year.
Another benefit of claiming a shared office deduction is that it puts your business income to good use. Much like other tax deductions for business expenses, claiming a shared office deduction can be good for your business budget. You’re already spending this capital on your shared office payments, and claiming a deduction means that these dollars go further. Failure to claim a deduction for your company’s shared office means you end up paying for the office, but you also end up paying in taxes for the money that the shared office makes you.
Who is Eligible to Claim a Shared Office Deduction on Their Taxes?
Eligibility to claim a shared office deduction usually comes down to whether or not your shared office is for a legitimate business purpose. The IRS allows business owners to write off certain expenses or portions of expenses related to business costs. Lease payments on a traditional office are usually considered business expenses, and these can be written off on your tax return in most cases.
A shared office is similar to a traditional office space in that a shared office is a place where you conduct business for your company. Even if this space is shared with other business owners in a coworking relationship, it may still be your primary place of business or a designated business location for your company.
If you’re wondering whether you qualify for a shared office tax deduction, below are some different scenarios that may apply to your situation:
Business Owners May Be Eligible to Deduct Shared Office Expenses
Business owners who lease shared office space can usually deduct the cost of lease payments on their taxes. Once again, your situation will come down to whether your business is registered as a pass-through LLC or some other form of incorporated business. If your business is incorporated or a public company, you may face different tax rules and are encouraged to work with a tax attorney.
Some Self-Employed People Can Deduct Shared Office Costs
Self-employed individuals may fall into a variety of categories, especially in the gig economy. Someone who is self-employed may be a sole proprietor. This designation is reserved for people who own businesses by themselves with no employees.
You can also be considered self-employed if you are a freelancer who works contract jobs for several different employers per year. In order to be considered a freelancer, you must not be added as a permanent employee of a business or be taxed as such.
Instead, you will receive a 1099-MISC form which is used to file your taxes. Each employer with whom you do business should provide a 1099-MISC form to you if you have been paid over a certain amount. In 2023, this amount is $600.
In general, someone who is self-employed can write off the cost of a shared office space as long as the space is used for business dealings.
Remote Workers Cannot Deduct Shared Office Expenses
Remote workers may be considered employees of a company, but they do not work in a central office with the rest of the company’s main workforce. Remote workers sometimes work from home offices, but they may also take advantage of shared offices.
In general, shared office expenses cannot be written off by remote workers. If you are a remote employee but are on a company’s payroll, your use of a shared office is not tax-deductible.
Different Types of Independent Contractors Can Deduct Shared Office Costs
Independent contractors, including those considered freelancers or gig workers, are not employed by companies. Instead, they receive a 1099-MISC form from the businesses with whom they work. In most cases, independent contractors can write off business expenses, and shared office spaces may be deductible. To know for sure, you need to consult a tax professional since every independent contractor has a different situation.
What Expenses Are Eligible for a Shared Office Deduction on Your Taxes?
Expenses vary across different providers of shared office services. Some shared offices only require a monthly or annual lease payment. Others may include costs for add-on services like private offices, meeting rooms, designated parking or other features.
Below are some shared office expenses that may be tax-deductible along with some considerations to keep in mind:
Direct Expenses Are Usually Deductible
If your shared office is a deductible expense on your tax return, you will usually be able to write off the cost of the lease payments made to maintain your membership in the shared office space. In order for these expenses to qualify for a tax write-off, they must facilitate your ability to conduct business. They must also be reasonable for your state or city. Attempting to write off expenses that are completely unreasonable for your area may trigger an audit by the IRS.
If you pay for add-on services that do not directly impact your ability to conduct business, these additional costs may not be tax-deductible. Once again, the expenses your write off for your shared office space must be able to be demonstrated as reasonable and necessary.
Subscribing to additional features that do not directly correlate with your ability to reasonably use a shared office to conduct business may not qualify as tax-deductible expenses. To learn more, you will need to talk to a tax attorney in your state.
Frequently Asked Questions
Using the services of a shared office space or coworking space can offer a lot of benefits to business owners, their employees and their customers. Unfortunately, these matters can get complicated during tax time as business owners often wonder how paying for a shared office will affect their taxes. To put your mind at ease, below are some frequently asked questions and answers about whether you can write off your shared office expenses on your taxes:
Is Your Coworking Membership Tax Deductible?
A coworking membership may be tax deductible if it meets the IRS criteria for a business expense and you have chosen to itemize your deductions on your federal tax return. The amount that you can deduct from your taxable income from coworking membership fees will depend on the tax laws for the year in which you are filing and your ability to demonstrate that your coworking space is a necessary business expense for a legitimate business.
You cannot lease a coworking space for your hobby and then turn around and write this expense off. The IRS has rules regarding what constitutes a hobby and what is considered a legitimate business. If your business is not generating enough revenue for a long enough period of time, the IRS will consider it a hobby instead and will not allow you to write off the expense of a coworking space as a business expense.
is your Is Your shared office Tax Deductible?
A shared office tax is usually deductible as a business expense on your tax return. The percentage of your shared office expenses that can be written off will depend on the tax year. It would be a good idea to keep all receipts for payments made to your shared office provider. In the event that the IRS conducts an audit of your tax return, you will want to be able to produce receipts if you have itemized your deductions.
Something else to consider when looking into whether your shared office space is tax-deductible is whether or not this space exists in your home. Many business owners work from home offices, and these spaces may be shared with others.
This does not, however, make a home office a shared office. Instead, the IRS considers a home office to be a space where administrative business tasks are handled that is separate from the rest of the dwelling area. Also, no other space may be used for the business’s primary administrative activities.
A shared office space is a dedicated place where different businesses operate, and this space may be used as a temporary office or as a secondary office. You can write office home office expenses in some cases, but if your home office is eligible, you can only write off the percentage of your home that is used for the actual office.