Y is for Year End.
Tax returns are filed based on your tax year end. Individual filers have a calendar year which means that federal income tax returns are due on April 15 of each year – unless that day falls on a Saturday, Sunday or holiday as it does in 2012. This year, we have both (!) so returns are due April 17, 2012.
Businesses, however, may have a different year end. They can choose to file using a calendar year, as with individuals, or a fiscal tax year.
- A calendar year has a December 31 year end. Most small business taxpayers file on a calendar year basis.
- A fiscal year consists of 12 consecutive months ending on the last day of any month except December (since that would be the same as a calendar year, get it?).
In the first year of business, you can choose either a calendar tax year or a fiscal tax year. You indicate your choice of tax year by filing your first income tax return using that tax year. But be careful: once you’ve chosen your tax year, you may have to get IRS approval to change it. To get approval, you must file federal form 1128, Application To Adopt, Change, or Retain a Tax Year (downloads as a pdf). You must file form 1128 by the due date (not including extensions) of the federal income tax return for the year you plan to make the switch. Don’t be too eager to make the switch, though: you can’t file the form before the year end.
Most businesses opt for a calendar year because it’s easier to track. However, your circumstances may require or lean towards choosing a fiscal year. That includes businesses which may be seasonal (such as campgrounds or ice cream parlors) or which rely on other businesses on a fiscal year for funding (a number of nonprofits fall into this category) or other support. If you’re not sure, chances are that you’re a calendar year end but check with your tax professional for guidance.
