Starting a Business – Fiscal or Calendar Year

Starting your business on a calendar year or a fiscal year is likely something that gets overlooked with everything else that you will do when opening your doors, but it is an important factor to look at. A calendar year is what the majority of businesses out there do and it runs from January 1 to December 31. A fiscal year is a year that runs outside of the regular calendar.

Generally, the only time that you want to use a fiscal year is if you are in a business where it will benefit your tax reporting to do so. For example, a seasonal business like a restaurant many choose to use a fiscal year as it will likely give a better measure of the actual business.

There are some limitations with using a fiscal year. If you are planning on opening your business up as a sole proprietorship then you will likely have to go with a calendar year. This is due to the fact that you are probably already filing your taxes on a calendar year basis and therefore your business will have to do so as well.

S-corporations and personal service corporations usually have to stick to calendar year as well. The most leeway is given to those starting up a new C-corporation.

One important note is that whether you choose calendar or fiscal for your new business, you will be all but stuck with your decision. It is possible to change, but that will require you convincing the IRS that the business is one that warrants such a change. This will represent a lot of time and hassle, so choose wisely.

The IRS is nothing to mess with so really choosing a calendar of fiscal year should not be something that is taken lightly. In fact, it is probably in your best interest to talk with your accountant about which choice will the right choice for your upcoming business.

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