Tax Years - Calendar vs. Fiscal
You must compute taxable income on the basis of a tax year. A "tax year" is an annual accounting period for keeping records and reporting income and expenses. The tax years you can use are:
- A calendar year, or
- A fiscal year.
If you adopt a calendar year, you must maintain your books and records and report your income and expenses from January 1 through December 31 of each year. Generally, anyone can adopt the calendar year. However, if any of the following apply, you are required to adopt the calendar year.
- You do not keep adequate records.
- You have no annual accounting period.
- Your present tax year does not qualify as a fiscal year.
A fiscal year is 12 consecutive months ending on the last day of any month except December. If you adopt a fiscal year, you must maintain your books and records and report your income and expenses using the same tax year.
If you operate a business as a sole proprietor, the tax year for your business must be the same year as your individual tax year. For any other form of business, special rules apply. Publication 538, Accounting Periods and Methods, describes these rules. View the IRS version of this article to learn more
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