When it comes to taxes, accounting, and budgeting, knowing the difference between a fiscal year and a calendar year is crucial. A fiscal year doesn’t necessarily match the calendar year. For instance, Microsoft ends its fiscal year in June. On the other hand, a calendar year, as its name implies, starts on January 1 and wraps up on December 31. Companies like Amazon use this system for their tax reports.
So, what’s a fiscal year? Basically, it’s a 12-month period that a business uses for accounting and tax reporting, but its end date doesn’t have to align with the end of a calendar year. In contrast, a calendar year is a one-year period that starts on January 1 and ends on December 31.
There are several key differences between the two. A calendar year begins on New Year’s Day, follows the Gregorian calendar, and is often used for tax returns, starting on January 1 and ending on December 31. A fiscal year, however, can start on any date and requires more complex financial reporting. It needs to end 365 days later or within a twelve-month period, but it can offer more accurate income and expense reporting for businesses affected by seasonal fluctuations.
Interestingly, residents can use the same tax return as U.S citizens, regardless of whether they’ve chosen a fiscal or calendar year.
Can you change your tax year with the IRS? Well, the IRS uses the calendar tax year as a baseline. If you opt for a fiscal year, you need to adjust your deadlines. Your taxes should be paid by the 15th day of the fourth month after your fiscal year ends. So, if you’re a business intending to use a fiscal year for tax reporting, your first income tax return should align with the fiscal tax year you’ve picked.
When it comes to choosing between a fiscal year and a calendar year for accounting purposes, both have their pros and cons. A fiscal year can be beneficial, especially for seasonal businesses, as it can make financial statements more accurate. It’s also a good choice for retailers, as a fiscal year can span the holiday season. Additionally, using a fiscal year might get you more attention from your accountant during tax season, which is typically from January to April.
On the other hand, using a calendar year for financial and accounting matters can be simpler, particularly for sole proprietors and small businesses. When a business and its owner’s tax returns coincide, compiling the financial statement becomes easier. Plus, the IRS default system is based on the calendar year.
It’s important to note that for many individuals and S corporations, there’s no difference between a fiscal or calendar year. The tax filing period remains the same twelve months. However, this isn’t always the case.
If you’ve already filed for your tax year but want to change your income tax return schedule, you’ll need to file a request with the IRS, typically using Form 1128 – the Application to Adopt, Change or Retain a Tax Year.
Does a fiscal year always differ from a calendar year? Not necessarily. For most small businesses, they do, but a fiscal year can also align with a calendar year. However, it can’t be longer than 371 days or 53 weeks.
As for income tax regulations, businesses can file their taxes using either a fiscal year or a calendar year. The best choice depends on staying up-to-date with Income Tax Regulations and Internal Revenue Codes.
Lastly, the fiscal year in the United States for the federal government starts on October 1, 2022, and ends on September 30, 2023. Many nonprofits use a July 1 to June 30 timeframe for their fiscal years. Different businesses may have different fiscal year requirements, depending on the internal revenue code. For example, an S corporation needs to fill out Form 1128 to file using a different fiscal year. If you’re a sole proprietor, your year will end on December 31, and the fiscal year you use will be the same – January 1 to December 31. Some businesses might also make installment payments on estimated taxes, typically divided into four parts.
