Calendar year is the period from January 1st to December 31st. Generally, taxpayers filing a version of Form 1040 use the calendar year.
An individual can adopt a fiscal year if the individual maintains his or her books and records on the basis of the adopted fiscal year.
Fiscal year comprises 12 full months, but not in the same calendar year. The IRS defines a fiscal year as 12 consecutive months ending on the last day of any month except December. A 52/53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. An individual can adopt a fiscal year if the individual maintains his or her books and records on the basis of the adopted fiscal year. Businesses may adopt fiscal year accounting for multiple reasons, such as when business operations started or to better incorporate operational results due to seasonal business activities or other business purposes.
Reminder: Electing a fiscal year (a tax year ending on the last day of any month other than December), alters the entity return due date to on or before the 15th day of the fourth month after the close of your fiscal year. The short-year tax return will be filed using the most recent year tax forms available.
Tax Year is the consecutive 12-month period selected for reporting taxable income and filing a tax return. If an entity wishes to select a unique tax reporting period it may elect to file a Short Tax Year (less than 12 months). This is necessary based on when business operations begin and if the business selects a tax year other than a calendar year or changes tax year reporting.
Required Tax Year refers to IRS filing requirements for certain returns to use the Calendar Year for income tax purposes. An entity may be required to use a calendar year by a provision in the Internal Revenue Code or Income Tax Regulations. Normally individuals, sole proprietors, partnerships, and S corporations utilize a calendar year/required year filing. However, unless the IRS has stipulated a required year, a tax year (either calendar or fiscal) is established by the first income tax return filed using that tax year.
Can a filer change tax year reporting?
An entity wishing to change their tax year must file Form 1128 with the IRS requesting IRS approval to change the tax year. A change in tax year reporting cannot result in more than an aggregate 3 month deferral of reporting income to IRS.
Reminder: Electing or changing a tax year is not performed when filing a tax return. It must be filed with the IRS and approved prior to making the election or making a change in tax year reporting.
Note: This article is intended to provide an overview of the terminology regarding tax years. It is not intended as tax advice.