Because paying taxes is an important responsibility for any business, it’s critical that you understand when your taxes are due.
Yesterday, we took a look at the important tax/ payroll deadlines in March, and if you haven’t checked it out, we highly suggest you do so here: Important Tax Deadlines for Business Owners March 2022. Since our post, we have received multiple questions from business owners trying to better understand the tax year and how to compare the calendar year to the fiscal year.
The tax year a company chooses to follow depends on various factors and business preferences. Let’s review this subject to see what this information may have to do with your tax preparation process.
What is the Tax Year?
The tax year is the accounting period where a company and the government both calculate required tax liabilities and payments. The elements within a given tax year should be accounted for in a business’s tax preparation paperwork. Oftentimes, businesses have the ability to choose between following a calendar year or a fiscal year, depending on their unique circumstances. Whichever time period a company (or individual) uses, these are the 12 months during which they track tax payments and withholdings, income and expenses.
Usually, individuals must file income taxes based on the calendar year.
The tax year is an important time for any business owner or an individual, and in some cases may make more sense (or even be required) to submit more frequent tax returns – such as quarterly.
Sometimes, a tax year is shorter than the normal 1–2-month period, which may be the case for businesses that have only existed for fewer than 12 months.
**No matter what size or stage of your business, always consult a qualified tax professional for questions about your unique tax situation and recommended tax year, as well as questions pertaining to filing your tax returns.
When Does the Tax Year End?
The tax year can end at different times depending on how a company files their taxes. Some businesses use a fiscal year, any 12-month period ending on the last day of any month except December. Other businesses use the calendar year, a 12-month period beginning January 1 and ending on December 31.
Some organizations even use a 52–53-week tax year, which includes the correct number of weeks in a given year and can end on a date other than the last day of the month.
Different businesses choose to use different beginning and ending months for their fiscal year, this may or may not depend on industry characteristics. Taxation, fiscal regulation and policies regularly change, so it’s important that you are constantly up to date on the current rules pertaining to your situation.
Calendar Year Vs. Fiscal Year
Because the tax year can vary, it’s important to understand the difference between different account periods. Most importantly, the calendar year and the fiscal year. Sometimes, businesses have the choice to follow the calendar year or a different fiscal year, whereas others are required to follow the calendar year – usually those who don’t keep financial records
These are the features of the calendar year:
- Most commonly used fiscal accounting period
- Begins January 1
- Stays consistent every year
- Has the same meaning to every business that uses it
- Ends December 31
These are the features of a fiscal year:
- Used less frequently as an accounting period
- Begins the 1st day of a chosen month
- Varies from one industry and business to another
- Can sometimes vary from year to the next
- Ends on the last day of the twelfth month from the chosen start date
When Do You Need to Do Your Taxes?
As you can see above, your tax deadline will depend on your specific business and situation. Varying circumstances such as your selected tax year – calendar, fiscal, or other – and industry can affect when your taxes are due.
Depending on your situation, you may need to do taxes only one a year and you may need to submit more frequent payments. In other cases, you may need to submit tax payments every quarter to ensure they have been paid enough tax throughout the year.
Here are some details on when you might file your taxes in certain situations:
Individuals and Calendar-Year Businesses
For individuals and businesses filing taxes for a calendar year, the deadline has historically been April 15, though this can change depending on outside factors. For example, economic factors might motivate the IRS to postpone the tax deadline for every calendar year tax filer. If the standard tax deadline falls on a non-business day, such as a Saturday or Sunday, it is often postponed until the next business day. The best way to know when your calendar year taxes are due is often to consult with a tax professional.
For businesses who file taxes according to a fiscal year, the tax deadline may be different. This is often the fourth month following the end of a company’s fiscal year, but this might change depending on current rules and regulations. Additionally, businesses who use a fiscal year for tax purposes from the beginning may continue doing so as long as they wish.
Be sure to note that businesses that start out paying taxes on a calendar year basis usually need special permission from the IRS before changing to a fiscal year tax filing schedule. The best way to know when your fiscal year taxes are due is often to consult with a tax professional such as an accountant or tax attorney.
Remember that tax rules are complex, can change over time and vary by location and industry, so always consult with your tax advisor or CPA for guidance specific to your situation. Because the IRS has stated that this tax season is “going to be messy” you want to make sure that you do everything in your power you can to ease the process as much as you can. A smooth tax season starts with the right adviser, one with a high level of expertise and industry wide experience. Let one of our MCDA CCG team of financial consultants be that someone.
No matter how unique and complex your situation, we can assure your satisfaction. As we continue to pass deadlines and near the end of the season, you have no more time to waste. Give our office – headquartered in Placentia, Orange County, California- a call! ((657) 258-0577)
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