What Is the Difference Between Fiscal Year & Calendar Year for a Business?

A fiscal year and a calendar year are two different ways of measuring a year for financial and administrative purposes. Learn the difference between fiscal and calendar years for accounting and tax purposes, and how to choose the best option for your business. This article provides a comprehensive overview, exploring its importance, structure, and how it. Transitioning from a fiscal to a calendar year carries significant tax implications that organizations must carefully evaluate. One of the primary considerations is the potential impact on tax liabilities.

How To Change Your Tax Year to a Fiscal Year

Your business can have any fiscal year you want, depending on your business type, as described above. But it’s almost impossible to have the difference between calendar year and fiscal year for business taxes no fiscal year because the IRS will ask you for this date. Fiscal year-end is also used to determine the filing dates and due dates for extensions. Governments generally set fiscal year-end dates to coincide with the timing of tax collection and their budgeting process.

However, if your organization has already adopted a calendar or fiscal year and you’d like to make a change you’ll need to submit Form 1128 to the IRS. During that process, nonprofits are required to provide financial statements including a Form 990. Some states require that the organization provide a copy of tax-exempt status from the IRS and a formal audit report.

IRS Tax Year Requirements for Businesses

It’s also important to point out that companies that use fiscal years have different tax filing deadlines. The filing deadline is the 15th day of the third month following the fiscal year end for S corporations, partnerships and other so-called “pass-through” entities. For instance, an S corporation with an April 30 year end must file its return by July 15. An example may include an organization that does a lot of work providing donations during the Holiday months and may not want a tax year ending in December. The business will still need to file a return for the period, regardless of the reason behind the shortened tax year. Imagine that a business is set to begin its operations on May 1, but have opted to use a calendar year.

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A change in accounting period results in a ‘short tax year,’ a period of less than 12 months. For instance, if a business switches from a calendar year to a June 30 year-end, it must file a short period return from January 1 to June 30. The tax for this short period is calculated based on IRS rules found in Publication 538, Accounting Periods and Methods. Changing the selected tax year of a nonprofit affects the presentation of financial statements during the year the change was made and in the following 12 months. If an audit is required by the IRS, investors, Board policies, donors, or lending institutions, the nonprofit can choose to extend the audit period in the first year, auditing for more than 12 months.

• A fiscal year is the 12-month accounting period for a business cycle.
• The fiscal year is identified by its year-end date, often the last day of a quarter, such as March 31, June 30, September 30, or December 31.
• For example, suppose you’re requesting a tax year ending on June 30.

Key Differences in Tax Timing

The IRS defines a fiscal year as “12 consecutive months ending on the last day of any month except December.” When comparing two companies with different fiscal years, analysts must ensure that the information for both firms covers the same time frame to avoid skewing the comparison. Fiscal-year taxpayers generally must file by the 15th day of the fourth month following the end of their fiscal year. A calendar year is simply the conventional year that begins on January 1 and ends on December 31. If such a firm refers to its 2018 full-year profits, for example, it is talking about the total money it has earned between January 1, 2018, and December 31, 2018. Our firm is a Member of AGN International, a global association of separate and independent accounting and advisory businesses.

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For instance, revenue recognition and expense matching principles must be carefully applied to avoid any misstatements. This can be particularly challenging during the transition period, as it involves prorating figures to align with the shortened fiscal period. Changing an organization’s tax year from fiscal to calendar involves navigating a series of legal requirements that ensure compliance with tax regulations.

• This can lead to temporary disruptions but also offers a chance to optimize audit processes for greater efficiency.
• C corporations have a slightly different deadline—they must file their tax returns by the 15th day of the third month after the end of their fiscal year.
• Alternatively, a business can elect to have its fiscal year end on a specific day of the week closest to the last day of a particular month.
• On the other hand, a fiscal year is any 12-month period ending on the last day of any month other than December, like October 1 through September 30.
• Companies can schedule significant purchases or investments at the end of their fiscal year to maximize deductions in the current tax period.

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However, the auditor will be forced to present a single-year report with no comparable data available. Once your business tax reporting method is chosen, you’re required by the IRS to continue filing your taxes using that schedule. Grasping the difference between fiscal and calendar year reporting is pretty important if you’re running a small business. Whether you’re organizing your income, keeping track of expenses, or dealing with taxes, the type of year you choose makes a real difference.

Income Deferral

This leads to a clearer reflection of the business’s annual performance and financial position. For example, agricultural businesses might choose a fiscal year that ends after their harvest season, providing a complete picture of their annual crop cycle and related expenses. Retailers often select a fiscal year ending on January 31st, allowing them to account for all holiday sales and returns before closing their books. It’s important to note that flow-through entities that use a fiscal year must have their return filed by the 15th day of the third month following the end of their fiscal year. So that means that if their fiscal year ends on July 31, their return would need to be filed by October 15.

The Internal Revenue Service (IRS) defines the calendar year as January 1 through December 31. A fiscal year is any consecutive 12-month period that ends on the final day of any month except December. If you opt for fiscal year reporting, it does not have to end on the last day of a month.

For companies with seasonal fluctuations or unique operational cycles, sticking to the traditional January-to-December calendar year might not reflect their true financial performance. That’s why many organizations choose a fiscal year that aligns more closely with their busiest periods, sales peaks, or industry-specific needs. Selecting a fiscal year can enhance financial clarity, improve planning accuracy, and provide strategic tax advantages. The chosen financial year also establishes the entity’s tax year, directly impacting when tax returns are due to the IRS. Once a business selects a fiscal year, it must generally adhere to this choice for all future reporting periods.