Calendar Years vs. Fiscal Years

With the filing date for the R&D tax credit quickly approaching, it is now time for companies to focus their attention on getting their claim in order.

To better understand the filing dates for each type of business, it is important to understand the difference between a calendar year and a fiscal year. Calendar years are always from January 1st to December 31st. Fiscal years can be any consecutive 12-month period, beginning on the first day of the first month and ending on the last day of the last month. Fiscal years drive tax reporting. Taxpayers pick fiscal years different from calendar years to suit their operational purposes, so they aren’t doing taxes in a period of peak activity, like Christmas time would be for retail companies.

Fiscal years that don’t run congruent to calendar years are designated by the month in which they end. For example, a fiscal year that runs from October 1, 2012 to September 30, 2013 is called “fiscal year 2013.”

Under IRS rules, a tax return is usually due on the 15th day of the fourth month after the end of the tax year. If the tax year is a calendar year, as it most often is, then the return is due on April 15, a date we are all familiar with (for corporations, the deadline is the 15th day of the third month following the tax year, or March 15 for a calendar year).

However, you may be wondering why the fiscal years matter? As noted above,  it depends on the type of business you own and your busy periods. If you have a cyclical business that has highs and lows in sales and activity, you may decide you want to have your business fiscal year be the end of the quarter after the activity has ended. This makes it easier to see how your business has done for the year.

Technically, your business can have any fiscal year you want. But the IRS has some requirements for tax years. A business taxed as a sole proprietorship (which files its business income tax return on Schedule C), must use December 31 as the business tax year. Because single-member LLC’s are taxed as sole proprietorships, they must also use a December 31 business fiscal year.

Generally, anyone can adopt the calendar year as their tax year. However, if any of the following apply, you must adopt the calendar year:

  • You keep no books or records;
  • You have no annual accounting period;
  • Your present tax year does not qualify as a fiscal year; or
  • You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations.

To find out which deadline applies to you, read our previous blog post which outlines the filing deadlines.

If you would like further information about tax lodgement or filing for an extension, please contact your  nearest Swanson Reed representative or office.

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