With the growth in the field of technology, the corporate world has also evolved and has outgrown the concept of working from conventional offices. People now believe in the aspect of freedom and creativity that has to be coupled with professional work to bring out the best results. This is the primary reason why the trend and culture of coworking spaces are promoted.
Companies have also changed their outlook towards employee management and many of them have resorted to working from coworking spaces at remote locations. Many people and companies are opting for solutions like coworking spaces but along with benefits related to amenities and savings on expenditure, there are certain other benefits related to tax as well, but most people are not familiar with them. People now prefer to work from remote locations as there are various benefits associated with the concept. Consequently, this has increased the The popularity of coworking culture.
Freelancers and individual professionals who are home office users qualify for a tax deduction, but so is the case for coworking locations. You might want to consult a tax professional for more advice but in most cases, your membership in a coworking space is completely deductible due to its representation as a business cost. Rent acts equivalent to the amount of expense on a traditional work address.
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Is coworking membership tax-deductible?
The answer is indeed a Yes!
Special considerations are made if-
- You are a user of a home office and If you have assigned a portion of your house to qualify as an office space, you can ask your accountant to identify how much, if any at all, overlap you can receive among your home office and your coworking membership.
The percentage that is deducted from the rent or mortgage when you work as a freelancer depends upon the square foot area of your office. For instance, if the office space used is 200 square feet in a 2000 square foot home, then you have the right to deduct a certain percentage from your rent or mortgage value. Other bases that have an impact on this tax deduction percentage are utilities such as drinking water, internet power supply, and printer.
Is food tax-deductible in coworking?
Other business expenditures such as some expenses that are a part of your daily business might qualify as tax-deductible. For instance, if you plan to conduct a meeting at a particular restaurant or cafe, you have the right to claim for a specific percentage of the total expenditure if the discussion of business is under the tax code changes.
The difference that is important to understand is that other costs such as daily meals at your office are a part of your personal expenditure. Even if you purchase anything from the canteen or food court for normal consumption, this expenditure does not qualify for tax deduction but is just a regular expense on food.
Is the cost of commuting deductible?
Commuting includes not only the cost of public transport but if you use your private vehicles, it could include other costs such as toll fees, gas, petrol, and parking. This is a more complex area and the rules are a bit difficult to understand.
If you practice regular transit to a certain location or address for official purposes, the expenses on commuting to that address are not tax-deductible, but if you operate mostly from home and do not use transportation for everyday purposes but only when there is a requirement to reach to a particular meeting on an irregular basis, then this cost that occurs on transportation is deducted on your tax return.
Expenses on commuting using a private vehicle and other transportation such as buses, trolleys, auto-rickshaws, Subway, Metro and local Railways are all a part of personal transit expenditure. The instance when you can claim a tax deduction is when you have a temporary work location, an address that you worked in for a year or less.
This location cannot be your permanent address or the address of your daily work place. If you ask someone who works remotely and changes locations very frequently, you can claim for a tax deduction or if the work is in the same industry as your permanent job irrespective of the distance. You can claim a tax deduction if your residential address is the main place of work, but the expenses must be transferred from your house to another office address in the same work sector.
Additional business expenses
- Additional business expenditures that are accruing- your coworking membership gives you a monthly invoice which might include certain other additional services such as photocopies and conference room rentals. Most of the time, these expenses also qualify to be deductible but they should be included as a part of the office expenditure and not as part of deduction in rent.
- Companies providing coworking spaces usually allow free on-site parking to help maintain commutation costs at a minimum rate and other general necessities such as drinking water in order to decrease non-tax-deductible expenses.
Coworking spaces house people working under different titles such as freelancers, company employees, and individual workers but tax rules apply to all these groups in a different manner. Employees who work remotely have to face a lot more difficulties and challenges while trying to claim tax deductions as compared to other freelancers.
That is why they are required to keep detailed accounts and notes of all the daily expenses and a receipt of every transaction so that they are able to present proof when questioned.
Final Overview
Many individual workers have a lot of queries about all the expenses that are associated with coworking memberships and doubts regarding the tax deduction. Coworking spaces already reduce a lot of costs related to business operations which could be a disadvantage if renting a separate apartment for your enterprise, but along with that, they help in the reduction of some other major expenses such as your basic regular membership fees.
You will definitely be able to deduct more from environmental cost, lease, and technological cost, but coworking memberships are also tax-deductible. You pay the rental fee to the coworking space providing company but then you get some portion of it back again in order to have the capital to manage other business expenditures.
Along with the rent receipt, make sure to have a note of all the other services hired from them including the cost of printing, conference rooms in meeting rooms, and other office equipment.
If you are someone who is working and switching between coworking spaces and work from home, you are entitled to claim for tax deductions that are associated with your home office. Do not misinterpret daily food costs for a tax deduction. It is of significance that you do not try to cover all your expenses on food by opting for regular meetings or lunches or there may be consequences and audits on your taxes.
The IRS has made considerations and comes up with strict guidelines about tax deductions relating to co-working spaces and home offices. This has helped to reduce the number of forms to be filled and the procedures have become a lot smaller. It acts as a very economical and flexible advantage for people who hire services of co-working spaces and provides an overall advantage over business expenses.
Try to maintain a record of all your invoices and expenses so that you are able to answer in case of any questions raised by the IRS. Situations vary depending upon the coworking membership and company you choose to hire services from so ensure to consult a professional who can help you in more detail to identify tax deduction in your situation.
Be sure to get in touch with expert professionals to gain more knowledge and information about this topic. It is always beneficial to be aware of the tax benefits on offer before you make the final decision of availing the services of coworking space.
