Transitioning from Fiscal to Calendar Year: Steps and Considerations

For that reason, if you’ve already filed a business tax return, you’re probably already using a calendar year method and have to continue to pay taxes based on that filing schedule. Although following a calendar year is often simpler and more common among businesses, a fiscal year can show a more accurate picture of how a company is performing. For instance, many niche companies make the bulk of their revenue between a short set of seasonal months. If their revenue splits between two different months in order to adhere to a calendar year, it would become difficult to develop a reliable picture of the company’s performance during their peak season. Choosing either annual accounting period is about staying abreast of any Income Tax Regulations and Internal Revenue Codes. But you want to change your income tax return by adjusting the schedule.

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Businesses generally choose their fiscal year based on the period when they receive the most profit. For example, a business that earns most of its profit after the Christmas holiday season may choose to end its fiscal year right after. At the end of a fiscal year, a company reviews its entire annual bookkeeping. It reconciles transactions, makes adjustments, verifies financial data, and calculates all financial data, such as income, expenses, revenue, investments, and more. For example, many retail companies have a fiscal year that differs from the calendar year due to the heavy sales cycle during the holiday season.

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In this case, if your business runs on a calendar year, then its fiscal year is simply the calendar year and your return would be due on April 15. If you are using a factoring company that purchases your receivables during the fiscal year, you may want to check the tax implications while you sold your accounts receivable. Accounts receivable factoring services is used by companies that prefer cash on hand rather than wait for clients to pay. In some cases, large companies use a factor to trade accounts receivable for immediate cash.

However, exceptions may be granted if a legitimate business purpose can be demonstrated and IRS approval is secured. It’s important to remember that for many individuals and S corporations, there’s no difference between a fiscal or calendar year. This startup checklist also has some other matters you should consider about the finances of your business. The reasons and ways to change your tax year will largely depend on what kind of business you have. If you’re considering changing your tax year, you should speak with a tax professional. A professional can let you know whether changing your tax year makes sense.

So, a C corporation with an April 30 year end must file or extend its return by August 15. At JFW Accounting Services, we specialize in helping nonprofit organizations operate as efficiently as possible. Please contact us today if you have questions about your organization’s tax year or how to make the change. In this article, we discuss the difference between the two tax years, special considerations for nonprofits, and how to change your selection. It’s also something that is generally chosen when you file your first return.

Additionally, businesses must consider the administrative burden of filing additional tax forms and the potential need for amended returns, which can add complexity and require careful planning. Additionally, businesses must be aware of the potential need for a short tax year return. This is a tax return that covers the period from the end of the previous fiscal year to the start of the new calendar year. Filing a short tax year return can be complex, as it requires prorating income and expenses to reflect the shortened period accurately.

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• A fiscal year lumps everything—income and expenses—into one tidy tax return.
• As a business owner, you want to utilize every advantage available to maximize your success.
• Some businesses are seasonal, while others transact the same amount of business throughout the year.
• This includes informing employees, investors, and other stakeholders about the change and its expected benefits.
• For example, a fiscal year could begin on October 1st and end on September 30th.
• Conversely, a fiscal year can start on any date and end 12 months later.

CRI is a member of PrimeGlobal, a worldwide association of independent accounting firms and business advisors. PrimeGlobal does not and cannot the difference between calendar year and fiscal year for business taxes offer any professional services to clients. Each independent member of PrimeGlobal is a separate firm and an independent legal entity. PrimeGlobal is not a partnership and independent member firms are not acting as agents of PrimeGlobal or other independent member firms. When it comes to Macy’s, their fiscal year closes on the Saturday nearest January 31.

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With a customized fiscal year, businesses can time tax payments in line with high-revenue months, ensuring they have the liquidity needed to meet obligations without financial strain. Companies can schedule significant purchases or investments at the end of their fiscal year to maximize deductions in the current tax period. This tactic is particularly useful for businesses with cyclical cash flow, such as those in retail or agriculture. Businesses can postpone recognizing revenue until the next tax year by ending their fiscal year before peak income periods. For example, a construction company might choose a fiscal year ending March 31, allowing it to delay recognizing summer revenue until the following tax cycle.

Engaging with external advisors, such as accountants and tax consultants, can provide additional insights and help identify any overlooked issues. Yes, you can change your tax year, but it requires IRS approval through Form 1128 and, in many cases, a solid business reason. It’s not guaranteed, and filing incorrectly can lead to delays or denial. Big bank JPMorgan Chase (JPM), whose quarterly financial reports typically signify the start of earnings season, runs on a calendar year.

• Nonprofits, for instance, might sync up their fiscal years with grant payouts, while shops could pick a date right after the holiday buying bonanza, like ending the year on January 31.
• Typically, going off the calendar year is sufficient for small business owners.
• 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.
• ‍You must file IRS Form 1128, Application To Adopt, Change or Retain a Tax Year, if you want to change from one type of reporting year to the other.

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Regular audits and reviews during the transition period can help identify and address any discrepancies early on. The IRS evaluates several factors when considering such applications. One primary consideration is whether the change serves a legitimate business purpose. This could include aligning the tax year with the calendar year to streamline financial reporting or to synchronize with parent companies or subsidiaries that operate on a calendar year. The IRS also examines whether the change will result in a substantial distortion of income, which could affect tax liabilities.

This strategic timing can reduce errors and improve the efficiency of audits and financial statement preparation. Some business types, especially sole proprietors and Personal Service Corporations (PSCs)—such as those in law, health, or accounting—are generally required to use the calendar year. These restrictions exist to prevent potential tax avoidance by manipulating fiscal periods.

Fiscal-year C corporations generally must file their return by the 15th day of the fourth month following the fiscal year close. Companies that adopt a fiscal year also must use the same time period in maintaining their books and reporting income and expenses. Many business owners use a calendar year as their company’s tax year. It’s intuitive and aligns with most owners’ personal returns, making it about as simple as anything involving taxes can be. But for businesses whose primary operating season doesn’t fall neatly within a single calendar year, choosing a fiscal year end can make more sense.

In Disney’s case, it likely has chosen September because it’s the end of the busy summer season at its resorts. However, fellow Dow Jones stock Nike’s (NKE) fiscal year starts in June. This means its next earnings report will feature the results from its fiscal fourth quarter, which ends on May 31. The term “fiscal year” is a fairly simple concept, but it’s the type of investing jargon that not everyone is familiar with. If you aren’t using a calendar year for your fiscal year, check with the accountant before answering this question.