Taxes for Freelancers Who Work From Coworking Spaces and Home Offices

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If you freelance or contract from a coworking desk or a spare room, you are generally treated as self-employed for tax purposes. That means you pay self-employment tax, make estimated payments during the year, and can deduct real business costs, including a workspace. This guide covers the US basics; rules differ elsewhere and your own case may differ.

Am I self-employed for tax purposes?

If clients pay you by invoice instead of through payroll, the IRS generally treats you as self-employed. No employer withholds anything from your payments, so the tax work moves to you. The IRS publishes guidance for self-employed people, and a tax professional can confirm what applies to you.

Remote employees on a payroll are different: your employer withholds tax, and most of what follows does not apply to you.

What is self-employment tax?

Self-employment tax is how freelancers cover Social Security and Medicare. Employees split those taxes with their employer; you pay both halves. The rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare, as explained on the IRS self-employment tax page. It is figured on Schedule SE, and it sits on top of ordinary income tax.

The practical lesson: a good share of every invoice is not yours to spend. Many freelancers move a fixed percentage of each payment into a separate savings account the day it arrives.

When do I pay estimated taxes?

Because nobody withholds tax from your invoices, the IRS expects you to pay during the year. Per the IRS estimated taxes guidance, you generally need to do this if you expect to owe $1,000 or more when you file. Payments are normally made in quarterly installments using Form 1040-ES.

• Check the current due dates on the IRS page each year, since they can shift around weekends and holidays.
• Put each due date in your calendar a week early.
• If your income swings month to month, base each payment on what you actually earned so far, and ask a tax professional about safe-harbor rules.

Can I deduct my workspace?

This is where coworking members and home-based workers have different options.

Coworking space fees

A membership or day pass you use to do your business work is generally the kind of ordinary and necessary expense self-employed people deduct. Keep the invoices and note which clients or projects the space supports. If you also use the space for personal reasons, only the business part counts.

A home office

The IRS home office deduction requires that part of your home is used regularly and exclusively for business. A desk in the corner of the living room that doubles as the dining table usually will not qualify. A dedicated room or clearly separate area may. If you want to build that kind of space well, our portable home office kit post covers what to put in it.

Equipment and software

Laptops, monitors, headsets, chairs, software subscriptions and a business internet plan can all be business costs. Larger purchases may be treated differently from small ones, so ask your adviser before a big buy near year end. If a stable connection is your weak point, see our remote worker's guide to reliable internet.

What records should I keep?

Good records are what turn deductions into something you can defend. A simple routine is enough:

• Separate accounts: use one bank account and card for business only.
• Receipts: photograph them when you buy and file them by month.
• Invoices: number them, track which are paid, and note the date money arrived.
• Mileage and workspace days: if you commute to a coworking space, note the dates and purpose of trips.

Our post on expense tracking apps compares tools that can do much of this automatically.

What if I work with clients or a team in other countries?

Income from foreign clients is generally still income you report. Moving or living abroad adds separate rules, such as the Foreign Earned Income Exclusion, which has specific presence and residence tests. The IRS explains the basics in its Topic 414 on foreign earned income. If you pay a contractor in another country or hire staff there, that raises its own questions, so get advice before you start.

Which mistakes cost freelancers the most?

• Spending the whole invoice: skipping the tax set-aside, then facing a large bill.
• Missing quarterly dates: penalties and interest can add up.
• Mixing personal and business spending: it makes deductions hard to prove.
• Claiming a home office that is not exclusive: this is a common trigger for trouble.
• Going it alone on a complex year: a first year of freelancing, a new state, or a move abroad deserves a professional's eyes.

When should I talk to a tax professional?

Talk to a CPA or enrolled agent when you start freelancing, when you form an LLC or hire people, when you work across state lines or borders, or when a deduction is unclear. State rules also vary and are not covered here. A short session before the year ends usually costs less than fixing a mistake afterward.

For the practical side of a better workspace, you can browse the portable gadgets at MaviGadget, and plan your yearly spend with our budgeting guide.