Fiscal Year VS Calendar Year for Business TaxesDifferences You Need to Know Between the Two!

Denise Elizabeth P
Senior Financial Editor & Contributor

Determining the type of taxable year for a business is important prior to file their tax returns.

The Internal Revenue Services (IRS) defines a Calendar Year as the period that starts on January 1 and ends on December 31.

However, the Fiscal Year is defined as any 12 month period that can start at any month of the year.

A fiscal year can be the same as a calendar year. 

There are many companies in the United States that use the calendar year as their fiscal year.

For example, big companies such as Amazon and Meta, use the calendar year.

fiscal year vs calendar year for business taxes 

Requirements to Adopt a Tax Year

When it comes to choosing the most appropriate income reporting, any business is free to choose what works best for the kind of structure that their business has.

For businesses that have only requested an extension on the filing of their incomes taxes or an Employee Identification Number, or paid the tax estimate for the first year of business operations – the IRS does not consider the business to have chosen either the calendar year or the fiscal year

However, when a business doesn’t have an annual accounting cycle, maintains informal records of their books, or if their current tax year doesn’t qualify for a fiscal year, then the IRS will require the business to adopt a calendar year. 

But if the business has already filed for a tax return using a calendar year, it will be expected to file future returns under this structure.

The only way to change it from a calendar year to a fiscal year is to request it from the IRS. 

Partial Tax Years

Short Tax Year refers to a tax year that is not a full 12 months.

Usually, for businesses that have started in the middle of the calendar year or have changed their accounting period, the IRS will still require them to file a tax return even if the tax period is less than 12 months.

In effect, the tax bill will be computed differently – it will be based on the last day of the short tax year. 

Tax Year Changes

For businesses that require a change in their tax year, they may do so by filing for a request through the IRS by submitting Form 1128.

If the request is automatically approved, a user fee will not be required to be paid, and if the business is not eligible for automatic approval, it will also not be required to pay a fee or request a ruling. 

Fiscal Year for Seasonal Businesses

Seasonal businesses make the most of their earnings only on certain months of the year.

For these kinds of businesses, letting them have a calendar year method will mean that they will have to split their tax years into the seasons when they operate.

However, if they adopt a fiscal year, they will be able to file their tax returns in the same period that they prepare their books. 

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  1. Internal Revenue Service "Tax Years" Page 1 . March 1, 2022

  2. Internal Revenue Service "About Form 1128, Application to Adopt, Change or Retain a Tax Year" Page 1 . March 1, 2022