Office space can be one of the most expensive costs an entrepreneur incurs. Whether you have an office in a commercial building, work from home, an incubator or a coworking space the costs you incur to house your business operations may be deductible and they can quickly add up.
Tom is a real estate agent in Phoenix, Arizona who owns a brokerage and has two employees working under him. Tom pays $1,500 per month for 500 square feet of office space in an executive office park. If Tom's business occupied the office space for the full 12 months last year he could deduct $18,000 for his office rent on line 20b of his Schedule C.
Elisha owns and actively manages three properties, which he rents on a long-term basis. He does not provide any substantial services along with his properties. Managing his rental units do however take up a significant portion Elisha's time so he decided it would be best to have a dedicated office to work from. Last year Elisha paid $3,500 in rent for a small office. When Elisha prepares his taxes at the end of the year, he could likely deduct this expense on line 19 of his schedule E (to the extent allowed).
Grace is a sole proprietor HR consultant. Grace has a membership at cove, where she works on average 5 hours per week, and a membership at Uber offices where she spends the remainder of her time. Grace maintains her cove membership primarily for networking purposes and does the majority of her work from her Uber office. When Grace prepares her Schedule C, she would deduct her payments to Uber Office as a rent expense on line 20b and her payments to cove as an advertising expense or an other expense on line 8 or 27a, respectively.
Brad is a solo website developer who splits his time working from home and from 1776, a local incubator. Even though Brad works from home he can still deduct the rent he pays to 1776 as an office expense on line 20b of his Schedule C. If the space Brad works from at home meets the requirements for the home office deduction, he can also deduct the portion of his home expenses related to his business activities on line 30 of his Schedule C.
Tim is a professional speaker who rents a small office in WeWork that he uses to draft presentations prior to his speaking engagements. When Tim moved in he paid an $850 security deposit. When Tim prepares his Schedule C at the end of the year, the security deposit should not be included as a rent payment since he is expecting to receive it back, rather, it should be included as an asset on his balance sheet. The only circumstance in which a security deposit should be deducted as an expense is if it is clear that it will not be refunded.
