This time around, most companies will report first-quarter earnings that encompass the first three months of the year. The IRS requires businesses to file their taxes on the 15th day of the third month after the end of their fiscal year. So if a company’s fiscal year ends on June 30, the business must file its taxes by September 15. Generally, those who follow the calendar year for tax filings include anyone who has no annual accounting period, has no books or records, and whose current tax year does not qualify as a fiscal year. You must first obtain approval from the Internal Revenue Service (IRS) by filing Form 1128 if you want to switch from the calendar year reporting to fiscal year reporting for your tax filings. For example, in the United States, though the fiscal year begins in October, the tax year is usually the calendar year for individuals.
Switching From a Calendar to a Fiscal Year
The Internal Revenue Service (IRS) permits companies to be either calendar year or fiscal year taxpayers. Companies often choose to use fiscal years if they feel a non-calendrical 12 months better aligns with the nature of their business. In roughly two-thirds of all countries, the government’s fiscal year is the calendar year. Most other countries begin their year at a different calendar quarter—e.g., April 1 through March 31, July 1 through June 30, or October 1 through September 30. In the United States, the government’s fiscal year begins on October 1, meaning that Q1 in the government’s fiscal year is October 1 to December 31, Q2 is January 1 to March 31, and so on.
Why is a fiscal year important to investors?
Fiscal year (FY), in finance and government, an annual accounting period for which an institution’s financial statements are prepared. Different countries and companies use different fiscal years (often referred to in financial records with the acronym FY), and the fiscal year need not align with the calendar year. While countries generally have a default fiscal year used by the government, they often allow individuals and organizations to employ different fiscal years based on their specific needs. Most companies choose their fiscal year-end based on the seasonality of their business. Some businesses are seasonal while others transact the same amount of business throughout the year. Businesses generally choose their fiscal year based on the period when they receive the most profit.
Advantages and Disadvantages of a Calendar Year
When the country adopted the Gregorian calendar in 1752 to better align itself with other countries in Europe, there was a mismatch between the calendars of about 11 days. Great Britain consequently extended its 1752 tax year by 11 days, to end on April 4, to ensure that no revenue was lost as a result of the shortened calendar year. In 1800 the start of the tax year was moved forward one more day, to April 6. However, though April 6 remains the start of the tax year for individuals, the British government and British corporations operate on a tax and fiscal year beginning slightly earlier, on April 1.
This system automatically results in some 52-week fiscal years and some 53-week fiscal years. Fiscal years that vary from a calendar year are typically chosen due to the specific nature of the business. For example, nonprofit organizations often align their fiscal years with the timing of grant awards. At the same time, a for-profit business might choose a year that ends after it traditionally has its largest revenue intake, such as a retailer ending its fiscal year on Jan. 31. A business may choose any consistent fiscal year that it wants; however, for seasonal businesses such as farming and retail, a good account practice is to end the fiscal year shortly after the highest revenue time of year.
- In the United States, eligible businesses can adopt a fiscal year for tax reporting purposes simply by submitting their first income tax return observing that fiscal year.
- According to the NRF, this calendar lines up holidays and ensures comparable months have the same number of Saturdays and Sundays.
- For example, calendar-year businesses typically file their tax returns on March 15.
- In this case, the fiscal year would end on the same day of the week each year, whichever is the closest to a certain date–such as the nearest Saturday to Dec. 31.
Why Use a Fiscal Year Instead of a Calendar Year?
With some business, using a calendar year doesn’t make as much intuitive sense and can actually distort accurate measurements. It’s important to understand that every business will set its year-end based on particular needs. For example, the Gregorian calendar was adopted in India nationwide when the British colonized the country.
If you’re an iPhone user, you’ll be happy to know that Apple’s (AAPL) fiscal year ends on the last Saturday of September. Walt Disney’s (DIS) fiscal year is also in September, although it ends on the Saturday closest to September 30. In Disney’s case, it likely has chosen September because it’s the end of the busy summer season at its resorts. It is up to the discretion of the company or organization when their financial year ends. Companies that can use fiscal years which don’t coincide with calendar years can break their year up as they see fit to align with their industry.
For example, a business that earns most of its profit after the Christmas holiday season may choose to end its fiscal year right after. For example, many retail companies have a fiscal year that differs from the calendar year due to the heavy sales cycle during the holiday season. For example, a company may choose to use a fiscal year to better reflect seasonal effects on the business, for tax reporting purposes, or to align with an academic calendar.
For example, maybe the company discovered that its fiscal year did not align with peers, which made it difficult to make comparisons between the two. An additional example is educational institutions, which may align their fiscal year with the academic calendar. Many nonprofits also use a fiscal year because it allows them to deal with large fluctuations in revenue like big end-of-year donations. Two examples of companies using a fiscal year are Apple (AAPL), whose fiscal year ends on September 24th, and McKesson (MCK), whose fiscal year ends on March 31st. Among the inhabited territories of the United States, most align with the federal fiscal year, ending on 30 September. These include American Samoa, Guam, the Northern Mariana Islands and the US Virgin Islands.[69] Puerto Rico is the exception, with its fiscal year ending on 30 June.
The 53rd week is accounted for by those that measure a year using 52 weeks vs 12 months, which results in an extra day each year or two additional days in a leap year. For example, seasonal businesses that derive the majority of their revenue during a certain time of the year often choose a fiscal year that best matches revenue to expenses. For individual and corporate taxation purposes, the calendar year commonly coincides with the fiscal year and thus generally comprises all of the year’s financial information used to calculate income tax payable.
For many businesses, using a 12-month fiscal year facilitates year-to-year data comparisons, as each year will have the same number of days. However, some businesses have strong weekly revenue patterns, and so it is more important to them to begin and end accounting periods on the same day of the week. For example, a movie theatre that does most of its business on Saturdays and Sundays may choose a 52-to-53 week fiscal year to ensure that most periods have the same number of weekend days and can be more easily compared. In the United States, eligible businesses can adopt a fiscal year for tax reporting purposes simply by submitting their first income tax return observing that fiscal year. However, companies that want to change from a calendar year to a fiscal 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. A calendar year for individuals and many companies is used as the fiscal year, or the one-year period on which their payable taxes are calculated.
The term “fiscal year-end” refers to the completion of any one-year or 12-month accounting period other than a typical calendar year. A fiscal year is often the period used for calculating annual financial statements. A company’s fiscal year may differ from the calendar year, and may not close on Dec. 31 due to the nature of a company’s needs. Large corporations use different fiscal years to track revenue, costs, profits, and file reports with regulatory authorities. A corporation’s taxes are due on the 15th day of the fourth month after its fiscal year ends.
For example, a business observing a fiscal year from June 1 to May 31 must submit its tax return by Sept. 15. In 1843, the federal government changed the fiscal year from a calendar year to one starting on 1 July,[68] which lasted until 1976. Whatever fiscal year-end date is determined, companies must make a decision when they file for incorporation, as their fiscal year-end date cannot be changed every year. It is also important to note that the timing of a company’s fiscal year does not change the due date on taxes. For sole proprietors and small businesses, tax reporting is often easier when the business’s tax year matches up with that of the business owner. Moreover, while any sole proprietor or business may adopt the calendar year as its fiscal year, the IRS imposes specific requirements on those businesses wanting to use a different fiscal year.
Calendars are useful for individuals and corporations to manage their schedules, plan events and activities, and mark special occasions in the future. The advent of technology has made planning even easier, as calendars are now easily accessible through computers, smartphones, and other personal devices. According to the NRF, this calendar lines up holidays and ensures comparable months have the same number of Saturdays and Sundays.
A 52–53 week fiscal year generally ends on the same day of the week in the same month each year except when the 53rd week has been added. Fiscal years are often designed to accommodate 364 days (52 weeks multiplied by seven days), leaving 1.25 days per year unused. The extra days—including leap days—are totaled up into another week which is tacked onto a future fiscal calendar every five or six years. Given that so many companies are in need of tax professionals at the end of the calendar year, a fiscal-year company might be able to get a lower rate at a less busy time.
A 10-K is an annual financial performance report filed by publicly traded companies with the Securities and Exchange Commission (SEC). For companies that rely on seasonal activity, using a fiscal year may be beneficial. For instance, it is common for retail companies to end their fiscal year on Jan. 31, after the holiday season has ended. This ends the year on a high note, gives the company more starting capital to work with, and keeps it from trying to prepare financial reports during its busiest sales period.
Reasons vary for why some entities might want a fiscal year different than the calendar year. Fiscal years are commonly referred to when discussing budgets and are a convenient period to reference and review a company’s or government’s financial performance. If comparing two companies with different fiscal years, analysts must adjust the data to ensure the information for both firms covers the same time frame so as not to skew the comparison one way or another. This is especially the case for companies that do business in seasonal industries. Companies sometimes change their fiscal year end to align themselves with their peers, making it more easily comparable. In addition, you’ll often see companies undertaking an initial public offering (IPO) change their year-end to make it more attractive to prospective investors.