If you’ve ever been in a budget meeting or looked at your company’s financial statements, you’ve probably hear a lot of talk about the fiscal year of the organization, but what does that really mean?
What Is A Fiscal Year?
In general terms, the fiscal year is the 12 consecutive months for a which a company prepares their financial statements. More specifically, a fiscal year is often differentiated from a calendar year for accounting purposes. A fiscal year in these terms, would be any 12-month accounting period ending in a month other than December.
How Do I Know If I Should Be On A Fiscal Year Or A Calendar Year?
For the most part, the IRS will assume that a business is operating on a calendar year unless otherwise noted. The deadlines the IRS sets are by default based on taxpayers who operate on a calendar year basis.
For example, corporation who honor a calendar year are usually required to file their returns by March 15th (two and a half months following the close of the accounting period). Fiscal year taxpayers would be required to adjust their reporting deadlines accordingly.
A financial advisor or Utah CPA in Salt Lake City, with an understanding of fiscal year businesses would be best equipped to help you to determine your eligibility. They can walk you through the requirements of what it takes to become a fiscal year entity and determine whether a change in reporting periods from calendar to fiscal year will meet your needs.
If eligible, a business may elect an operating year other than a calendar year. This typically requires a business reason along with a few other factors. Depending on the type of business that you have, the IRS may require that you operate your company on a calendar year basis (one example is business that have no set annual accounting period or individuals who file their first return using a calendar year and then later become sole proprietors.)
GAAP requires a company to adopt a fiscal year for business accounting purposes that most naturally aligns with their operations. If your business is seasonal in nature, you may need to look at whether a fiscal year should be adopted.
For example, a school district may find it most beneficial to adopt a fiscal year for business accounting purposes, that more appropriately aligns with the school year such as July 1, 20XX to June 30, 20XX. This could be true for your specific business depending on your industry and busy season. Talking to a small business accountant could be very beneficial in finding out what kind of calendar you should use.
Once you have adopted a fiscal year, you will need to stick with it. You are not allowed to change your reporting period from year to year.
If you have any questions about adopting a fiscal versus a calendar year for your business or would like to learn more about Utah CPA services in Salt Lake City, please feel free to contact us for more information.