There are three types of tax years allowed by law. These are calendar year, fiscal year, or 52/53 week year. There are also, in special situations, short tax years. Click on each button below to learn more about these accounting periods.
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Calendar Year
A calendar year runs January 1–December 31, just like the calendar. Sole proprietorships must report on a calendar year basis, just like individual taxpayers. Because the owner's personal tax return reports the results of operations, the year-ends need to be consistent.
Fiscal Year
A fiscal year ends on the same date every year. For example, many retail stores use fiscal years ending January 31 each year, meaning each year starts on February 1 and ends on January 31. Many other businesses use June 30 year-ends, meaning the fiscal year begins July 1 and ends June 30. Flow-through entities, such as partnerships and S Corps, must match their tax year with the tax year of the owners. So, a partnership owned by individuals would use a calendar year. This avoids the possibility of deferring taxes by having a partnership with a June 30 year-end and an owner with a calendar year.
52-53 Week Year
A 52-53 week year gets its name because, in some years, businesses throw an extra week into their year of operations. A 52–53 week year ends on the same day of the week every year. For example, a business’s year may end on the last Saturday in January, no matter the actual date. Generally, this tax year is only available to C corps, although a flow through an entity owned by a C Corp could also choose a 52–53 week year.
Short Tax Year
A short tax year occurs when the tax year is shorter than 12 months. These occur most often in a business’s first or last years of operations, and if the business changes its tax year. In the first year of operations, a sole proprietorship may begin operations in April. They would file a return for the period April 1–December 31, a short tax year. In years after that, the business would file tax returns for full calendar years. The same could happen in a business’s final year. If it had been operating in the past on a calendar year, but only operated until May 31 in its final year of operations, it would need to file a return for the period January 1–May 31, a short tax year.
Similarly, a business may decide to change its calendar year, which can only be done with IRS approval. If a business decides to move its year-end from June 30 to December 31, it will need to file a tax return for the period from July 1–December 31, a short tax year. In the later years, it would file a full year’s return for the calendar year operations.
