Choosing a Fiscal Year for Your Business

Fiscal year or calendar year? There is a difference and IRS rules govern your choice.

By , J.D.
Need Professional Help? Talk to a Business Law Attorney.

There was a problem with the submission. Please refresh the page and try again
Full Name is required
Email is required
Please add a valid Email
Phone Number is required
Please enter a valid Phone Number
Zip Code is required
Please add a valid Zip Code
Description is required
By clicking "Find a Lawyer", you agree to the Martindale-Nolo Texting Terms. Martindale-Nolo and up to 5 participating attorneys may contact you on the number you provided for marketing purposes, discuss available services, etc. Messages may be sent using pre-recorded messages, auto-dialer or other automated technology. You are not required to provide consent as a condition of service. Attorneys have the option, but are not required, to send text messages to you. You will receive up to 2 messages per week from Martindale-Nolo. Frequency from attorney may vary. Message and data rates may apply. Your number will be held in accordance with our Privacy Policy.

You should not send any sensitive or confidential information through this site. Any information sent through this site does not create an attorney-client relationship and may not be treated as privileged or confidential. The lawyer or law firm you are contacting is not required to, and may choose not to, accept you as a client. The Internet is not necessarily secure and emails sent through this site could be intercepted or read by third parties.

All businesses are required to pay taxes and keep accounting records year by year. You automatically choose your tax year when you file your tax year when you file the first tax return for your business. After that, you have to get IRS permission to change.

The vast majority of small businesses use the calendar year as their tax year--that is, their tax year begins on January 1 and ends on December 31. However, your tax year does not necessarily have to end on December 31. When a business's tax year ends on the last day of any month other than December, it is said to have a "fiscal year."

Ordinarily, sole proprietors, partnerships, limited liability companies, S corporations, and personal service corporations are required to use the calendar year as their tax year. However, there are exceptions that permit some small businesses to use a fiscal year instead. To do so, the business must get permission from the IRS. The IRS doesn't like small businesses to use a fiscal year instead of a calendar year, but it will grant permission if a business has a good reason to do so.

One good reason to use a fiscal year is that your business is seasonal. For example, if you earn most of your income in the spring and incur most of your expenses in the fall, a tax year ending in July or August might be better than a calendar tax year ending in December, because the income and expenses on each tax return will be more closely related.

To get permission, you must file IRS Form 1128, Application To Adopt, Change, or Retain a Tax Year. You may have to pay a fee.

Larger businesses organized as regular C corporations have more leeway in choosing their tax year than most others. They often choose to use to use a fiscal year instead of the calendar year as their tax year. For example, the fiscal year for many C corporations ends in March, June, or September. Such corporations typically choose to use fiscal years for accounting convenience.

February 2013

Get Professional Help
Talk to a Business Law attorney.
There was a problem with the submission. Please refresh the page and try again
Full Name is required
Email is required
Please add a valid Email
Phone Number is required
Please enter a valid Phone Number
Zip Code is required
Please add a valid Zip Code
Description is required
By clicking "Find a Lawyer", you agree to the Martindale-Nolo Texting Terms. Martindale-Nolo and up to 5 participating attorneys may contact you on the number you provided for marketing purposes, discuss available services, etc. Messages may be sent using pre-recorded messages, auto-dialer or other automated technology. You are not required to provide consent as a condition of service. Attorneys have the option, but are not required, to send text messages to you. You will receive up to 2 messages per week from Martindale-Nolo. Frequency from attorney may vary. Message and data rates may apply. Your number will be held in accordance with our Privacy Policy.

You should not send any sensitive or confidential information through this site. Any information sent through this site does not create an attorney-client relationship and may not be treated as privileged or confidential. The lawyer or law firm you are contacting is not required to, and may choose not to, accept you as a client. The Internet is not necessarily secure and emails sent through this site could be intercepted or read by third parties.

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you