What is the Fiscal Year?

fiscal yearFiscal year is a one-year period that companies and governments use for financial reporting and budgeting. It is most commonly used for accounting purposes to prepare financial statements. Although it can start on January 1st and end on December 31st, it does not correspond with the calendar year. For example, universities often begin and end their fiscal years according to the school year.

It is important to publicly traded corporations and their investors since it includes revenue and earnings making year-to-year comparisons possible. For tax purposes, the Internal Revenue Service (IRS) allows companies to be either calendar-year taxpayers or fiscal-year taxpayers.

It is commonly referred to when discussing budgets and are a convenient time period to reference and review a company’s or government’s financial performance.

It is a period of time lasting one year but not necessarily starting at the beginning of the calendar year. Countries, companies, and organizations start and end depending on their accounting and external audit practices.

The U.S. federal government runs on an October 1 to September 30 fiscal year. It is common for nonprofit organizations to observe a July 1 to June 30 fiscal year. Fiscal years that vary from a calendar year are typically chosen due to the specific nature of the business. For example, nonprofit organizations typically align their year with the timing of grant awards.

Such years are referenced by their end date or end year. For example, to reference a nonprofit organization, you may say, FY 2020. Similarly, if you referred to government spending that occurred on Nov 15, 2019, you would label that as an expenditure for the fiscal year 2020.

According to the IRS, they consist of 12 consecutive months ending on the last day of any month except December. Alternatively, instead of observing a 12-month fiscal year, U.S. taxpayers may observe a 52- to 53-week year. In this case, it would end on the same day of the week each year, whichever happens to be closest to a certain date–such as the nearest Saturday to Dec 31.

IRS Requirements 

The default IRS system is based on the calendar year, so fiscal year taxpayers have to make some adjustments to the deadlines for filing certain forms and making payments. While most taxpayers must file by April 15 following the year for which they are filing, these taxpayers must file by the 15th day of the fourth month following the end of their year. For example, a business observing a fiscal year from June 1 to May 31 must submit its tax return by September 15.

In the United States, eligible businesses can adopt this for tax reporting purposes simply by submitting their first income tax return observing that fiscal tax year. At any time, these businesses may elect to change to a calendar year. However, companies that want to change from a calendar year must get special permission from the IRS or meet one of the criteria outlined on Form 1128, Application to Adopt, Change, or Retain a Tax Year.

Summary

*   It is a one year period chosen by a company to report its financial information.
*   Financial reports, external audits, and federal tax filings are based on a company’s fiscal year.
*   Companies may choose to report their financial information on a non-calendar year based on the specific nature and revenue cycle of that business.

 


 

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