• Fiscal Year vs. Calendar Year
  • Worked Example: A Seasonal Business

A fiscal year is the 12-month period a business uses for its yearly accounts, and it can start in any month. A business whose year runs from July 1 to June 30 has a fiscal year, while one whose year runs from January 1 to December 31 uses the calendar year. In the US, a fiscal year can also be your tax year, but IRS rules decide which businesses can use one.

Fiscal Year vs. Calendar Year

OpenStax's Principles of Accounting (§4.1) defines both:

  • Fiscal year: "A fiscal year is a twelve-month reporting cycle that can begin in any month and records financial data for that consecutive twelve-month period."
  • Calendar year: "If a company uses a calendar year, it is reporting financial data from January 1 to December 31 of a specific year."
  • Why choose a fiscal year: a fiscal year "may best reflect the operational flow of revenues and expenses for a particular business."
  • Shorter periods: "An interim period is any reporting period shorter than a full year (fiscal or calendar)." Monthly and quarterly statements are interim periods.

Worked Example: A Seasonal Business

This is a sample with invented figures. A snow removal business earns $1,000.00 a month from April to October. Its winter months bring in more:

  • First winter: November 2024 $6,000.00, December 2024 $14,000.00, January 2025 $18,000.00, February 2025 $16,000.00, March 2025 $8,000.00.
  • Next winter (start): November 2025 $7,000.00, December 2025 $15,000.00.

Step 1: fiscal year from May 1, 2024 to April 30, 2025

  • May to October 2024: 6 × $1,000.00 = $6,000.00
  • November 2024 to March 2025: $6,000.00 + $14,000.00 + $18,000.00 + $16,000.00 + $8,000.00 = $62,000.00
  • April 2025: $1,000.00
  • Total: $6,000.00 + $62,000.00 + $1,000.00 = $69,000.00

Step 2: calendar year 2025

  • January to March 2025: $18,000.00 + $16,000.00 + $8,000.00 = $42,000.00
  • April to October 2025: 7 × $1,000.00 = $7,000.00
  • November and December 2025: $7,000.00 + $15,000.00 = $22,000.00
  • Total: $42,000.00 + $7,000.00 + $22,000.00 = $71,000.00

Step 3: compare

  • The fiscal year holds one full winter: $62,000.00 of its $69,000.00.
  • The calendar year holds the end of one winter ($42,000.00) and the start of the next ($22,000.00), so its total mixes two seasons.
  • The fiscal year ends on April 30, in the quiet season, so the year-end close doesn't fall in the busiest months.

US Tax Rules for a Fiscal Year (IRS Publication 538)

These are US federal tax rules, from IRS Publication 538, Accounting Periods and Methods (revised January 2022). Which tax year your business can use depends on its type and history, so ask your accountant before you choose.

  • Tax year: "Every taxpayer (individuals, business entities, etc.) must figure taxable income for an annual accounting period called a tax year."
  • Fiscal year: "A fiscal year is 12 consecutive months ending on the last day of any month except December 31st."
  • Calendar year: "A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st."
  • Books must match: "If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted."
  • Adopting a tax year: "Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year."
  • When the calendar year is required: the calendar year is mandatory in several listed cases, among them "You keep no books or records" and "You have no annual accounting period".
  • 52-53-week tax year: Publication 538 lets you elect one "if you keep your books and records and report your income and expenses on that basis", and "your 52-53-week tax year must always end on the same day of the week."

Rules by Type of Business (US)

  • Individuals, including sole proprietors: "An individual can adopt a fiscal year if the individual maintains his or her books and records on the basis of the adopted fiscal year." Someone whose first return used the calendar year and who then starts out on their own as a sole proprietor "must continue to use the calendar year unless you obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval."
  • Partnerships, S corporations and personal service corporations: they must use a required tax year, though "The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code".
  • S corporations: "All S corporations, regardless of when they became an S corporation, must use a permitted tax year." The permitted years are the calendar year, a year elected under section 444, a 52-53-week year ending with reference to either of those, or "Any other tax year for which the corporation establishes a business purpose."
  • Other corporations: "A new corporation establishes its tax year when it files its first tax return."

Short Tax Years and Changing Your Tax Year (US)

  • Short tax year: "A short tax year is a tax year of less than 12 months." Publication 538 says a short period return may be required when a taxable entity is "not in existence for an entire tax year", or when it changes its accounting period.
  • Changing your tax year: Publication 538 says you file Form 1128 "to request IRS approval to change your tax year", and to "See the Instructions for Form 1128 for exceptions."
  • S corporation elections: "If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128."
  • The short period: the Instructions for Form 1128 (revised November 2017) explain that "In the case of a change in tax year, the first effective year is the short period required to effect the change."

Fiscal Year Reports in Billed

Billed's financial reporting page lists invoice reports, expense reports, income vs expense reports, top selling products and time tracking reports, and says "Each report can be filtered by date range and exported." Setting the date range to your fiscal year's first and last days gives you that year's figures. The expense tracking page adds that reports can be "exported for your accountant, bookkeeper or tax software."

Related Guides

FAQ

What is the difference between a fiscal year and a calendar year?

A calendar year runs from January 1 to December 31. A fiscal year is a 12-month period that can begin in any month. For US tax purposes, IRS Publication 538 (US, revised January 2022) says: "A fiscal year is 12 consecutive months ending on the last day of any month except December 31st."

Can a sole proprietor use a fiscal year?

IRS Publication 538 (US, revised January 2022) says: "An individual can adopt a fiscal year if the individual maintains his or her books and records on the basis of the adopted fiscal year." If your first return used the calendar year and you then go into business as a sole proprietor, it says you "must continue to use the calendar year unless you obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval." Ask your accountant before you choose.

Can an S corporation have a fiscal year?

IRS Publication 538 (US, revised January 2022) says: "All S corporations, regardless of when they became an S corporation, must use a permitted tax year." Its options are the calendar year, a year elected under section 444, a 52-53-week year ending with reference to either of those, and "Any other tax year for which the corporation establishes a business purpose."

How do you change your tax year?

In the US, Publication 538 (revised January 2022) says: "Generally, you must file Form 1128 to request IRS approval to change your tax year." The Form 1128 instructions list the exceptions. An electing S corporation that wants a tax year other than the calendar year requests approval on Form 2553 instead.

What is a 52-53-week tax year?

It's a US tax year that runs 52 or 53 weeks. IRS Publication 538 (US, revised January 2022) says: "You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis" and "your 52-53-week tax year must always end on the same day of the week."

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