Selecting A Fiscal Or Calendar Year For Your Business | Business ...

One choice you must make when starting a business is whether your accounting year will be the same as the calendar year. This decision has both operational and tax implications.

There are two main operational reasons for selecting a fiscal year to be something other than your calendar year:

Your business cycle, and workflow management.

The most common reason to select a fiscal year that does not end on December 31 is to reflect the natural seasonality of your business. The large retail stores often choose January 31 as the end of their fiscal year. Their business cycle concludes with Christmas shopping, and they allow another month for post-holiday shopping and returns since the numbers are often substantial.

Another example is the information publishing business, in which it?s common to host one large conference every year in addition to one or more smaller events throughout the year. You may sell information on dog training, operate a membership site, and also put on a live dog trainers? live conference in August of every year. For this business, the business cycle ends with this conference. So, you may to end your fiscal year on August 31, or September 30, so that your income and expense reports reflect how you naturally think about your business.

Workflow management should be considered as well. Small operations don?t have time to be dealing with a year-end close in the middle of their busiest season. Even if you have adequate office staff to complete the accounting work for you, it often makes good business sense to spread their work out more evenly throughout the year. In early January, your financial staff will be preparing 1099s, W-2s, and filing required employment related returns to the IRS and the state(s) in which you operate.

You must also consider taxation requirements, and take into account the IRS rules on the matter. The first place to begin is reading IRS Publication 538. Getting IRS concurrence with your selection of a fiscal year is not always a ?given?. ?C? corporations have the most flexibility in making this choice.

Generally, your ability to choose a fiscal year other than a calendar year is restricted or not allowed if you:

• Are a sole proprietor
• Are a partnership, LLC, or ?S? corporation
• Have previously selected another fiscal year and desire to change it
• Are unable to establish a good business reason for ending your fiscal year on a date other than December 31 (except for ?C? corporations).
• For more in depth analysis on your particular situation, see Publication 538 or consult a tax professional.

Selecting a fiscal year is one of those choices that every business owner must make, whether they realize it or not. Simply using the default calendar year is not a bad choice, in fact, most corporations do. If you?re just starting out, you may want to research this area to determine the best course of action for you.

Source: http://www.nyla-omc.org/selecting-a-fiscal-or-calendar-year-for-your-business.html

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